Centex Corp. F3Q08 (Qtr. End 12/31/07) Earnings Call Transcript

Centex Corporation (CTX)

Q3 FY08 Earnings Call

January 30, 2008, 10:00AM ET

Executives

Timothy Eller - Chairman and CEO

Cathy R. Smith - EVP and CFO

Matthew G. Moyer - Head of IR

Mark D. Kemp - Sr. VP and Controller

Analysts

Carl Reichardt - Wachovia Securities

Stephen East - Pali Capital

Buck Horn - Raymond James

Dennis McGill - Zelman & Associates

Susan Berliner - Bear Stearns

Keith Wiley - Goldman Sachs

Jim Wilson - Jolson Merchant Partners LLC

Jay McCanless - FTN Midwest

Scott Clavenna - Merrill Lynch

Alex Barron - Agency Trading

Randy Raseman - Durham Assets Management

Andrew F. Ebersole - Sentinel Asset Management

Zev Halstuch - AllianceBernstein

David Martin - BlueMountain Capital

Nishu Sood - Deutsche Bank

Michael Rehaut - J.P. Morgan

David Goldberg - UBS

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Centex Corporation's Fiscal Year 2008 Third Quarter Earnings Conference Call with senior management. Today's call will be recorded and transcribed. Today's call will also be simultaneously webcast at www.centex.com. A copy of today's presentation was filed last night with the SEC on Form 8-K. A link to that document is now available on that website.

Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward-looking statements. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call. For further information regarding these risks and uncertainties and Centex's forward-looking statement, please refer to the forward-looking statements disclosure in the presentation and to Centex's reports on Form 10-K and 10-Q filed with the SEC.

All participants will be in a listen-only mode and there will be a question-and-answer session after management's remarks. [Operator Instructions]. If you have additional questions following today's call, please contact Matt Moyer, Vice President of Investor Relations at 214-981-5000.

I'll now turn the call over to Mr. Tim Eller, Chairman and CEO. Please go ahead, sir.

Timothy Eller - Chairman and Chief Executive Officer

Thank you, Tina, and good morning, everyone. Thanks for joining us for our fiscal year 2008 third quarter conference call. With me today is; Cathy Smith, our Chief Financial Officer; Mark Kemp, our Chief Accounting Officer; and Matt Moyer, Head of Investor Relations.

I'll start the call with introductory comments on the quarter, and some thoughts about the months ahead. Next Cathy will provide details on our financial performance, I will offer some closing comments and then we will take your questions.

Turning to slide 3, the housing market continues to correct. New home inventories remain high, new homes starts are dropping and we are not yet at equilibrium. Affordability is improving with lower mortgage rates and declining home prices, but we continue to experience, even tighter mortgage underwriting standards and increasing down payment requirements again this quarter. This brought additional pressure on prices in essentially every market.

In response, we further reduce prices in many of our neighborhoods to enable buyers to qualify under government agency criteria. For example, 45% of our home buyers in backlog are financing with an FHA mortgage compared to only 7% a year ago. The home price reductions we've had to make were the principal reason for the additional impairments Centex incurred this quarter. And Cathy will discuss these in more detail in her comments.

We have a consistent well tested strategy to mange through this cycle. Our team has the experience that's necessary to navigate the choppy waters were in and that lie ahead. And we have the balance sheet to support the effort. We're focused internally on doing what's necessary to merge from this cycle in a better and stronger competitive position. We generated $100 million of cash flow from housing operations during the quarter, reduced our debt and further reduced our investment in joint ventures.

Our emphasis on transparent pricing is helping us sell homes. Traffic for neighborhood dropped 20% year-over-year, sales per neighborhood were down just slightly off 2% for the quarter. Our cancellation rate on new orders declined 550 basis points year-over-year and 240 basis points sequentially. Nevertheless, discounts increased this quarter in order to retain and close our backlog as home prices continue to decline.

We're also emphasizing pre-selling homes. Our total inventory of completed unsold homes has fallen to its lowest level in two years. Sequentially, our inventory of unsold houses dropped 10% from last quarter, and we continue to pursue expense reductions aggressively as we structure the business for profitability.

G&A expenses in home building declined 31% year-over-year and per unit overhead expense dropped by 24%. Corporate overhead dropped nearly 50% in the third quarter compared to last year. We are removing costs by simplifying and standardizing for example, we streamlined the Company's total house plan account from about 4,500 two years ago to less than 700 today.

Having fewer plans reduces complexity and enables us to optimize the manufacture ability of each of those plans which will saves costs and improves quality. We made good progress, but there is much more to go. In addition, we're systematically move into our land assets by selling homes while also reducing our land development expenditures.

Turning to slide 5, as I said before our intention during this stage of the cycle are to position ourselves, take advantage of opportunities. So while we are reacting to the market, we are also aggressively building a better Centex. We are focusing resources and investments in those markets, where we can increase our relative share strength and which also provide the best opportunities for the highest future returns. This means exiting some markets that lack those characteristics.

During the quarter, we exited our Ohio markets by selling virtually all of our assets there. At the same time, we are intently focused on asset efficiencies and creating more flexible land position. The number of lots we own and control decline 36% this quarter compared to a year ago.

Central to our efforts to build the better Centex, is improvement of our core business processes. We are executing plans to standardize and improve each core process. For example, during the quarter we introduced a common construction organization structure across the enterprise. This allows us to implement improvement systematically, throughout each of our divisions and measure the results. With a common set of processes and metrics, we are able to set a higher bar and manage to it. Improving our core Centex business processes reached the higher levels of efficiency, sustainable cost reductions and more consistent future returns.

In tandem with improving our processes, we are also committed to developing our talent. This cycle offers many opportunities, for our employees to learn the lessons of the cycles and grow. We are using this time to build a strong base of leaders that will positively impact the company for years to come.

Looking ahead we expect economic conditions to soften and for closures to increase and with that pressure on house prices may continue. During this time of the cycle our strategy and execution remain consistent, to sell homes, to generate cash and structure for profitability. We are also positioning ourselves to take advantage of future opportunities by building a better Centex. We fully expect to emerge from this cycle in a stronger competitive position.

And with that, I will turn it over to Cathy to take us through some of the specifics for the quarter.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Thank you, Tim, and good morning everyone. In the quarter we continued to deliver all our commitments. We sold homes, generated cash, and structure for profitability. I'll explain each of these.

In addition, we are positioning ourselves for a sustainable lower cost structure and higher more consistent returns. Some of the highlights for the quarter are outlined on slide 6. Continuing to sell homes is essential to our strategy of reducing our inventory and lot supplies. Areas in which we again made solid progress. Sales per average neighborhood were down only 2% in the quarter. Our solid sales performance is due to our transparent pricing strategy and good community locations.

We've been moving to transparent pricing, what that means, as we do a lot of work around finding the right selling price for our neighborhood and then adjust the base price to that level. By doing these buyers know what the real price is, the price is not up-scaled with give-away and gimmicks. We can then attract the right buyers that, those that can qualify for mortgage and can afford the payment.

Solid, well founded prices also instill buyer confidence. The positive of this strategy is that it allows us to sell to a backlog more predictably. The short-term down side though, is it means adjusting our existing backlogs to those new price realities.

Another positive of the quarter, is the reduction in our land position and unsold inventory. We reduced our owned lots by 16% year-over-year to approximately 87,600 lots. Options lots now stand at about 31,000 down 52% year-over-year and 21% sequentially. We now have less than two years of option land and have made good headway on the owned position as well.

Further our unsold inventory is down 10% sequentially. We are emphasizing pre-sales and as our cancellation rates moderate, I'm confident we'll continue to reduce our unsold inventory. Our cancellation rate at 33% for the quarter is down sequentially and year-over-year. We are focused on selling homes to people who can afford them and can qualify for mortgage. We've moved quickly to reduce our prices to the new mortgage realities. And CTX Mortgage ensures we've well qualified buyers, so we can close sold home.

Slide 7, provides the details around the home building operations for the third quarter. We closed 6,657 homes in the quarter, 20% lower than last year. The average sales price declined 11% to $259,000. This is a 5% reduction sequentially. The average selling price will continue to decline on our closed homes in the near term reflecting our aggressive response to the tighter credit standards. The dramatic price adjustments the industry has experienced is a healthy step towards addressing the industry's affordability challenge. Unfortunately, it comes at a cost which is evidence in gross margin reductions.

Our goal is to remain operationally profitable through the trough. While we were only slightly unprofitable in the quarter at $31 million we were still negative. This is due to higher discounts and incentives, and seasonably lower volumes. Discounts totaling 15.2% are at record levels this quarter. This is up 7% points, year-over-year and up 420 basis points sequentially. The increase is directly related to preserving our backlog as we've moved to transparent pricing. Once we get through our backlog, we expect discounts and incentives to decline to more normal levels.

We are revalued to returning to profitability, before impairments as soon as possible. Our intensity and urgency remain high on this front. As Tim said, we continue to make solid reductions in our cost structure.

We incurred land related charges again this quarter, due to that continued price adjustments necessary to meet the tighter credit standards. As we've said, essential to selling homes is finding the right price where buyers can afford the payment and can qualify for mortgage.

On a pretax basis we recorded $554 million in impairments and other land related costs. The total break downs this way; impairments were $503 million; write-off of option deposits and pre-acquisition costs were $26 million; and our share of JV impairments was $25 million. The land charges were across a broader set of markets as most markets are effected by the tighter mortgage underwriting standards. However, they were heavier in the Southeast, Southwest, and Northern California. We impaired 152 neighborhoods this quarter, 71 of which were previously impaired.

As I said last quarter, we take a consistent, methodical approach to these adjustments. We recognize this is a dynamic environment. We will continue to take the same disciplined approach to valuing our assets each quarter. With all of the impairment analysis though, it's essential to assess each neighborhood for positive incremental cash flow. We evaluate every asset, every quarter to make sure we have a right strategy for that particular asset. We assess whether the highest return is to sell, go through or hold. You will notice our land held for development and sale increased this quarter by $25 million as a result of this analysis.

Turning to backlog. Our backlog of home sold now stands at 8,513 units with a total value of $2.3 billion. Year-over-year our backlog was down 36% on a unit basis. The right level of backlog will be increasingly important to us, creating a solid sold backlog allows us to build to a cadence. Build into a cadence using standardized business processes yield operating efficiencies and more predictable results and pre-selling a backlog is essential to our asset light business model. We are moving rapidly in this direction.

Let's now take a few minutes to review the regional results. Slide 8 details sales and closings by region. In the quarter we sold 5,537 homes down 10% year-over-year, our strong sales pace in the Southwest demonstrates there is good underlined demand and the effectiveness of our pricing strategy. In the Inland Empires, sales were up 43% on a per neighborhood basis, and in Las Vegas sales were up 49% on a per neighborhood basis.

Our Pacific Northwest and Coastal Carolina divisions, continue to see good levels of sales and traffic. Consistent with last quarter, our Texas sales were weaker as inventories have increased and the tighter credit standards have slowed activity. In total, one-third of our division experienced solidly positive year-over-year increases. On the flip side the other two-thirds were negative on a year-over-year comparison. Most of our markets remain challenged by over supply conditions and could get worst with foreclosures and economic conditions slowing.

Turning to slide 9, I'll comment on cost reductions and cash flow. We remain focused on improving our profitability and continue to make good progress towards this goal. We achieve 24% decrease on a per unit basis in G&A as we size the organization and cost to the current realities. Headcount is down 8% sequentially. No cost goes unquestioned. These are all necessary steps given the reductions in volumes.

However, the sustainably lower cost structure comes with business process improvements. We're doing much inside the company today to ensure we have an industry leading cost structure in the future. As Tim mentioned, we are focused on improving our core business processes. One example of that is our finance and accounting shared service efforts. Transition of our divisions to the shared service environments is progressing as planned. The shared service center gives us a platform for consistently processing our transactions. A shared service center allows us to scale more easily and efficiently as volumes go up and down, and it will allow us to support the business with fewer costs.

Although as we... as with all of our simplifying, standardizing and consolidating efforts, we'll see benefits this year, but the results will become more meaningful next year and beyond.

On the cash front, we generated positive home building operating cash flow this quarter of $100 million. With the cash we reduced our JV debt by approximately $70 million and our senior debt by $35 million. We are entering our strongest quarter for cash flow generations and still expect to generate significant cash. Throughout this year, sales prices have been dramatically changing making it more difficult to project cash flow. However, we don't see any reason to change our position of $500 million of cash from operations for the year.

In the quarter we recorded a loss in our financial services segment. This is primarily due to the $65 million increase in reserves for expected future losses on its discontinued construction-to-perm mortgage loan inventory. We continue to experience deteriorating performance on these loans that are concentrated in Florida and California.

Also in the quarter, we recorded a non-cash charge of $500 million to establish evaluation allowance related to our defer tax assets in accordance with FASB 109, accounting for income taxes. It is important to note that there is not a lot of predictability in the industry right now. And the FASB standard is highly interpretive. As such we won't be able to provide much more in the way of have additional commentary about this valuation allowance.

In all, we did what we needed to do this quarter. We sold homes, generated cash, and structured for profitability. We'll remain focused on this near term goals, while positioning Centex to take advantage of future opportunities. We are building a better Centex.

I'll now turning the call back over to Tim for his concluding remarks.

Timothy Eller - Chairman and Chief Executive Officer

Thanks, Cathy. To summarize the housing market continues to correct. Tighter mortgage underrating standards resulted in further house price declines during the quarter. However, we continue to sell homes at a relatively even, seasonally adjusted sales base. We are generating positive cash from operations, lowering debt and reducing investments in joint ventures.

Our efforts restructured the company for profitability continue. This includes systematic removing through our land assets, lowering our cost structure, and tightly controlling inventory. And are using this time to prepare for the future. We are intently focused on improving our core Centex business processes, which will create sustainable cost reductions.

We're also improving our asset efficiency by achieving a more flexible land position, and are taking steps to improve our relative share strength in the markets that we believe will offer the best future returns.

Now Tina, let's address the questions.

Question And Answer

Operator: At this time, we will begin taking questions. [Operator Instructions]. Thank you. Our first question will come from the line of Carl Reichardt, research analyst for Wachovia.

Carl Reichardt - Wachovia Securities

Good morning, guys. How are you?

Timothy Eller - Chairman and Chief Executive Officer

Good morning, Carl.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Good morning.

Carl Reichardt - Wachovia Securities

Hi, Tim, can you explain to me specifically how you expect the transparent pricing move to impact margins over the longer run? And then I have a second question with cash flow?

Timothy Eller - Chairman and Chief Executive Officer

Well, the way we view it, this is a necessary step in returning to something normal. Now, we have yet to see prices stabilize to call anything normal and we have yet to see inventories stabilize. But, we need to get back to pricing that is reflective of value. It's also important to do that for financing reasons, because right now, what people can qualify for is generally a Fannie Mae, a Freddie Mac or increasingly only FHA. So, it's important to have a price that reflects the values that attract the customers that can qualify for those mortgages.

Once we understand the pricing and where the pricing needs to be relative to our customer ability to... to qualify for a mortgage, then we can really focus on the cost aspects having a right product, with the right cost structure and the right set of subcontractors and suppliers to provide that house. So, what we've seen is just as I said in previous calls, just a resetting of values from Alt-A which could have been as high as 500,000, 600,000 into Fannie Mae and as we have seen underwriting standards tighten and down payments increase because these are now declining price markets according to appraisals increasingly move into FHA.

If you recall Carl, back in our history if not that long ago, about half of our business was FHA business and we are actually just moving back to where we once were. Doing all of this, is really a precursor to establishing a predictable set of prices and a predictable set of costs and a predictable set of margins.

Carl Reichardt - Wachovia Securities

Okay. On the cash flow front, this $500 million you are thinking by the end of Q4, Cathy. I am struggling a bit to get there frankly with just backlog delivery and cut back on land spend. Are you expecting any significant land sales transaction activity in the fourth quarter, or anything else that might be a kick to cash flow generation to get to your number or is it just straight ops?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

You know, it's a dynamic period for pricing and volumes and visibility as relatively low and, so I will say that first. But, our fourth... our fiscal fourth quarter is always our strongest cash recorder, I'll remind you what we did last year in the fourth quarter. So, ultimately our goal is to continue to reduce our inventory and rebalance our land positions and that's what we are focused right now.

Carl Reichardt - Wachovia Securities

Okay.

Timothy Eller - Chairman and Chief Executive Officer

And Carl we are looking at a number of things, as you have might expect us to, but there is no certainty in terms of will we might be able to sell. I think you should also expect fairly dramatic decrease in our unsold inventory.

Carl Reichardt - Wachovia Securities

Okay, okay. I appreciate that. Thanks so much guys.

Operator

Your next question will come from the line Stephen East with Pali Capital.

Stephen East - Pali Capital

Thank you. Just continuing on the cash flow side of it from Carl's question, I guess I am struggling a little bit also getting to those ranges just from the standpoint if I look at, the third quarter, based on the volumes it looks like you're continuing to pull back a fair amount into land development and/or land acquisition. Can we assume that it gets curtailed pretty meaningfully not only in the fourth quarter, but moving forward because it seems to be a struggle for you all to do that?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Steven, good morning. As we've talked about in the past, we evaluate every asset, every quarter, every month actually around an incremental cash flow analysis and the fastest way to healthier and normalized margin is to move to the land we have now, instead of a new land. And so it is important to... we need to move through the asset advances we're incrementally returning positive cash. So that means that we have continued to spend on land both acquisition and development. To remind you guys, our land spend totals have come down pretty precipitously over the course of the last three years or so $4.8 billion to $3.2 or $3.5 billion down to this year, a little around $1.618 and half of that again next year.

So you can see it's really come down pretty strongly. And that will continue to help us to generate cash. And as Tim said, first of all, we're going into our fourth quarter and that is our strongest cash flow quarter and I'm highly confident you'll see our unsold inventory come way down in the fourth quarter.

Operator

Your next question will come from the line of Buck Horn with Raymond James.

Buck Horn - Raymond James

Speaking of the unsold inventory, I was just wondering if you could perfectly adjust your spec home count to the current environment. What is the ideal level of spec homes per community, you think you would be carrying and how... is that a target you would manage to aggressively right now?

Timothy Eller - Chairman and Chief Executive Officer

Well there is two aspects to that. One is the number of the inventory homes that we have and the other is the age of the inventory homes that we have. And what we found as you might expect during the cycle as calculations occurred they tend to occur towards the end of the process, which means that our inventory homes tend to be older than would be the normal case.

So we are about six to seven unsold inventory homes now from a number of standpoint half of that would probably be more normal and our age is they are older than we would normally have simply because lot of [ph] cancellations.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

And as we continue to improve our core business processes we are really focused on cycle time, which will allow that the whip turns to increase and that inventory to continue to come down as well.

Timothy Eller - Chairman and Chief Executive Officer

So what we have looked at in the past and said in the past as our target on unsold inventories, about 15% of whip, we're about 25% today and again cancellations continue to nag us on getting that down.

Buck Horn - Raymond James

Perfect, thank you. Also what is your current most restrictive debt covenant and what kind of cushion did you have at quarter end?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yeah we only have two covenants in our credit agreement and they are a tangible net worth covenant and a debt-to-cap covenant. And as we said last time we expect to, to have to negotiator... will be negotiating a new agreement with our banker this quarter, really around the tangible net worth covenant.

Buck Horn - Raymond James

Okay, any idea what they, well okay thanks it was very helpful. Thank you.

Operator

And your next question will come from the line of Dennis McGill with Zelman & Associates.

Dennis McGill - Zelman & Associates

Hello

Timothy Eller - Chairman and Chief Executive Officer

Dennis.

Dennis McGill - Zelman & Associates

Hey, can you hear?

Timothy Eller - Chairman and Chief Executive Officer

Yes, I can hear you.

Dennis McGill - Zelman & Associates

I am sorry, just quickly on the, you mentioned some different options that you maybe pursuing towards the end of year and competitors looking at tax related land sales without talking about specifically what you maybe pursuing, can you talk about the interest level from potential buyers out there on the back of what other deals have happen in the industry and whether that you've seen an increased interest over the last couple of quarters?

Timothy Eller - Chairman and Chief Executive Officer

Consistent with what we've said the last few quarters is there appears to be a lot of capital out there and that is interested in land. We said that, kind of anecdotally because there hadn't been much in the way of transactions done and what we continue to find is there is a lot of interest by a lot of... lot of folks who claim to have a lot of capital, but we will see. We will see if anything gets done.

Dennis McGill - Zelman & Associates

Okay. And then just my second question related to that, given that you guys are operating above what you would call your ideal leverage, and if there were some sort of transaction we had probably done, we done as substantial loss to book. How are you kind of thinking about your debt position and how will you clean that up relative where your comfortable being over the next, let's say a year or two years?

Timothy Eller - Chairman and Chief Executive Officer

I wouldn't presume that we are going to do something that would be a substantial discount to book, I just start there.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

And then with regard to our debt-to-cap or our debt position, obviously we are going to need to continue to manage the ratios there. And so, prudently as we get cash that will be a priority.

Dennis McGill - Zelman & Associates

Okay. Well, thank you guys.

Operator

And your next question will come from the line of Susan Berliner with Bear Stearns.

Susan Berliner - Bear Stearns

Just a follow-up on the tangible net worth, Cathy can you just say, are you weak I think in compliances past quarter with that covenant?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes, we were.

Susan Berliner - Bear Stearns

Okay. And then secondly, can you just give us some color, I know you said you pay down some joint venture debt, can you give us some color on what's going on with your joint ventures, how you are able to achieve that and what we could expect going-forward?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yeah, first of all our joint venture position is relatively modest, we have a total of 43 JVs of which now 18 have debt and 25 are unlevered. The once with leverage are the once that provide less flexibility in times like this where you want it to maybe slowdown developments to meet market. And so our objective has been to continue to try to accelerate payment of those... of that debt if a highest price debt and it allows us to have flexibility. So that's where the payment of that debt came from this quarter. As we have willing partners to do the same thing, we are going to continue to try to remove that debt.

Susan Berliner - Bear Stearns

Great. Thanks I'll get back in queue.

Operator

Your next question is a follow-up question from Stephen East with Pali Capital.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Hey, Stephen?

Stephen East - Pali Capital

Cathy on the pricing that you mentioned, moving forward it will continue to decline. How should we look at... I guess how you all factored in land... factored in debt pricing in your land charges this quarter or if you did and also on operating margins sort of looking at least qualitatively where those margins go?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes. The... as we always do with our impairment methodology, we look at where we think price will go over the life of that asset or life of that neighborhood. So our impairments contemplate well what visibility or what insight or what judgments we think. And we do use some objective third party data to help us understand where the economics of the market, individual markets are going. So to that extent we should have contemplated everything that we expect in the way of additional price declines by market in our impairment analysis. And so that should be there. And then... best way to get to profitability is to adjust our cost structure to those new price realities and we are doing that as fast as we possibly can.

Stephen East - Pali Capital

Okay. And then Tim, just one another question for you on the transparent pricing, are you seeing particularly I am thinking about in California and you all mentioned Vegas etcetera. Are you all seeing competitors follow suit or what's the environment and what's the competitive landscape? How they are responding to that?

Timothy Eller - Chairman and Chief Executive Officer

Yes. More and more, that as the reality of what we need to do from a mortgage standpoint and a qualification standpoint, I think prices adjust. Now we have the advantage in many cases of having A locations, so that gives us a little bit of pricing power there. But we've tended to be... again very thoughtful about how we adjust our prices relative to the mortgage realities.

Operator

Your next question will come from the line of Keith Wiley with Goldman Sachs.

Keith Wiley - Goldman Sachs

Just two quick questions, first one on the financial services operations it looks like you had write-down of $60 million or something... or so. I am just wondering can you explain how that happened, my understanding is that you originate the loan and then within a week or two you sell that somebody else. So, how do you have the write-downs there. Can you explain that?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Sure. It's a great question and you are right. Predominantly that's exactly what we do. As we don't warehouse any loans we sell them all, within exception that is a specific loan product that we were using in the past, it just called the construction-to-perm loan and that's a loan that we make for someone to build on their own lot. So we make the loan and then we modified at the end loan. So in that time period we actually do warehouse that loan. And their... they are right after the reserve that we have taken, are really largely for that specific product which we stopped writing last summer. And we've... they were concentrated more in California and Florida, which unfortunately have seen some of veered pressured on price and therefore, we've had a little bit of underperformance there.

So, that's really where there are, so you're exactly right. We... and those by the way represented 3% to 4% of our total originations. So it's a very small piece unfortunately, it was concentrated, they were a product that we kept until we modified and most of the mortgage products that you would modify those two had gone away, and that's where that exposure is coming from?

Keith Wiley - Goldman Sachs

Got you. And then lastly on the joint venture, so how much more, if we look at over the next one or two years, how much more debt you thinks that you will pay down with the Centex cash flows at the joint ventures?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes, great question. It almost all goes away, if we haven't initiated a new joint venture with debt and well over a year and half or possibly even longer and by definition, most of those projects would be a three to five year life. And so, you've see our joint ventures coming off pretty strongly over the course of the next year to two and subsequently the debt that we go with it. For about $240 million in debt today in joint ventures and you will see all of that come out.

Keith Wiley - Goldman Sachs

Now, but is that coming out as Centex as own cash flows from operations or is that coming from the joint venture's cash flows?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

That are, that our share of the JV debt.

Keith Wiley - Goldman Sachs

So, you're Centex cash flows to pay down $240 million of the joint venture debt?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Correct.

Keith Wiley - Goldman Sachs

Okay. All right, thank you.

Operator

Your next question will come from the line of Jim Wilson with JMP Security.

Jim Wilson - Jolson Merchant Partners LLC

Yes, couple of question related to strengthen the success of the new orders both Southeast and the Southwest. Cathy was there any material difference in community counter, I guess even just looking at the regions in general whether... was your count up in Southwest and Southeast in a meaningful way?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

No.

Jim Wilson - Jolson Merchant Partners LLC

Okay. So it's really sales pace as you suggested sales pace per community. And then second thing was with this pricing strategy did that cancellation rates per region, I know obviously your national total is pretty good compared to others was it even better in some of these stronger regions with a lower cancellation rate?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

As we said we continue... we are really quite pleased with our sales pace and progress and we are still seeing really good sales generally across the entire nation. We can't may have been a little less in those areas Southeast they were a little less than the average. But again I would attribute that to A locations and transparent pricing. We are continuing to be able move through the assets.

Jim Wilson - Jolson Merchant Partners LLC

Okay. All right, great. Thanks.

Operator

Your next question is a follow-up question from Carl Reichardt with research analyst for Wachovia.

Carl Reichardt - Wachovia Securities

Tim I'm wonder if you want to handle the deferred tax asset to be really what I am trying to determine is how you guys expect, or maybe Cathy you know the valuation allowance when you return to profitability come back on through the income statement. Is it sort of a lump sum or you expect to come back to the tax rate, seems to be some difference in the opinion on the builders of that has come back?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes it really depends, with every quarter we require to evaluate the assets and well you have to keep making that assessment if the valuation allowances is necessary or not.

Carl Reichardt - Wachovia Securities

But Tim, sorry

Timothy Eller - Chairman and Chief Executive Officer

It could be either way, Carl.

Carl Reichardt - Wachovia Securities

Okay. All right, thanks guys.

Operator

Your next question will come from the line of Jay McCanless with FTN Midwest.

Jay McCanless - FTN Midwest

Couple of questions on the transparent pricing strategy. First one it implies... I am thinking about it in all the different neighborhoods it implies that you either expect or you have some type of pricing leverage with the customers. What are you seeing in the current conditions around the country that make all of you believe that you can push forward with this strategy and stick firm on pricing?

Timothy Eller - Chairman and Chief Executive Officer

If you could just think about the process that evolves through a cycle. What I would attribute it to is just a more mature point in the cycle. Historically, we price houses by and large was very, very little incentive. When the market changes dramatically as it has been, builders tend to provide incentives in order to keep the backlog priced at a higher level. What's happening now is we're having to renegotiate everything because of the loan product changes that have occurred in the mortgage market. So we've just accelerated our point of arrival if you will in terms of where we need to be in this cycle to... how business should really be run in this industry. And doing that it was buyer's confidence that the price to paying is a fair value and we can demonstrate that it is in the marketplace.

It also allows us to pre-sell homes because people understand that we're not offering excessive... incentives or inventory in order to provide per sales. So it is gives us some more stable foundation in order... in which to manage the business and also very clearly demonstrates to our sub-contractors and suppliers and ultimately land sellers what the realties of the market are in terms of house prices.

Jay McCanless - FTN Midwest

Okay.And then following on with that, if you look at the inventory at the end of the third quarter, what percentage of that inventory would fit into both transparent pricing model you've discussed, and then also just push I think to get more into conforming in FHA qualifying products. What percentage of your inventory now would fit into that?

Timothy Eller - Chairman and Chief Executive Officer

As I mentioned that in my comments 45% of that backlog is FHA qualified. The majority of the rest of it is Fannie Mae and Freddie Mac qualified which be a $417,000 or less mortgage. Some of it, small part of that really is jumbos or some kind of alterative mortgage of which there is some but very few of that remaining. So in terms of transparent pricing, it's... we are moving from a... into the transparent pricing model to transition that place. So in the backlog could be in many cases some over neighborhoods or some out of that still haven't seen it tied to it which is why you saw a discount as high as they were this quarter as well. So it's a two or three quarter transition that needs to take place I am kind of middle of it.

Matthew G. Moyer - Head of Investor Relations

Jay this is Matt Moyer, we had last quarter 90% of our neighborhoods had at least one floor plan, price below $417. So that's probably going to improve overtime.

Jay McCanless - FTN Midwest

Okay, great. Thank you.

Operator

[Operator Instruction]. Our next question will come from the line of Scott Clavenna with Merrill Lynch.

Scott Clavenna - Merrill Lynch

Hi, guys. Quick question for your on the upcoming maturates, how do you guys look to pay for those specifically the one in January, the $300 million? Did you use your revolver?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We dud pay it as schedule and we don't anticipate being in short-term debt at the end of the quarter.

Scott Clavenna - Merrill Lynch

Okay. Thank you very much.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

You are welcome.

Operator

Your next question will come from the line of Alex Barron with Agency Trading.

Alex Barron - Agency Trading

Hey, guys. Wanted to ask you questions on this transparent pricing strategy. I guess, I am just trying to understand it seems to be obviously working and it seems pretty logical so I am trying to figure out why do you suppose other builders aren't copying what you are doing and if they did what would you do compared to that or relative to that?

Timothy Eller - Chairman and Chief Executive Officer

Well I don't know the answer to that. I would speculate that from standpoint of some private builders they may just not have the ability to do that. And based on the further question, what we are seeing is increasingly more and more of the public builders doing... doing just that because it's it really is the reality of where the mortgage markets are today.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

And then that's a good thing we compete on community locations in our product. And that's a good thing for us.

Alex Barron - Agency Trading

But, basically what your saying is rather than lets say as an example instead of selling at $250,000 home with $50,000 incentive, all you doing is doing that your are selling it for $200,000. Is that basically the idea?

Timothy Eller - Chairman and Chief Executive Officer

That's the idea. That's basically... that... it's back, its back to the way it used to be.

Alex Barron - Agency Trading

Okay. My other question with regards... with regards to impairments. Are you just basically only impairing communities that are actively selling what about parcels of land that are currently under development or undeveloped?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We assess every asset that's whether they are currently selling or not, so we look at all of our assets, all of 1000, or 1,050 neighborhoods every quarter, so active and inactive both.

Alex Barron - Agency Trading

And of those 1050 what percentage would you say you have impaired, at least one-time as a percentage of the total from the beginning till today?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We have impaired about a third of the neighborhood in total, that's the active and inactive, at least one time.

Alex Barron - Agency Trading

And of just the active ones?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Well, I am not sure, it's going to be a little less. I mean that probably about half, but I can't tell you that for sure.

Alex Barron - Agency Trading

Okay, great. I will get back in the queue; otherwise I had one small one.

Operator

Your next question will come from the line of Randy Raseman with Durham Asset Management.

Randy Raseman - Durham Assets Management

Four questions, one just sort of high level from where you guys sit right now, I mean how big of a price reduction going forward do you think it will take to bring equilibrium back to market?

Timothy Eller - Chairman and Chief Executive Officer

There is two aspects that you have to think about, one is new home prices and the other is existing home prices. So, new home prices from our standpoint for Centex, we are really an equilibrium with our buyers right now, in terms of their ability to qualify for mortgage that's what we look at can they qualify from mortgage. The existing home prices generally take, several number of years to correct, what we are seeing now is actually a more rapid correction in the existing home prices, primarily for the same reasons that buyers need the ability to qualify and we have limitations in terms of mortgage amounts out there for Fennie Mae, Freddie Mac $417,000 and FHA, that varies from 200,000 to 350,000 depending on accounting.

Now, there is legislation, in the words that may change that we will see if it works its way through and it's successful but right now it looks like there it only be temporary relief on those mortgage limits.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Realistically we... essentially taken the price reduction that are going be necessary and why I say that is back to that commentary around transparent pricing is, is we do a lot of work around what's the right price for that neighborhood and so that means looking at like 15 year trend. Looking at the incomes of the buyers, looking at the mortgage product that are available and kind of in couple of quarter we have really addressed the affordability that was an industry issue in our prices because the mortgage industry allowed us to or actually insisted upon it. So because of that we really adjusted prices down where they need to get to you, pretty much across the most of neighborhood, noticed [ph] some refinement levels they we'll have to continue to access, but politically as a company we gotten there.

Randy Raseman - Durham Assets Management

And then just lastly on the mortgage asset you have a $748 million receivable on the balance sheet. Can you just break that down for me, how much of that is construction to permanent financing versus how much is the typical pass through that you then sell-off in the market and then are there any other mortgage related assets on the balance sheet, other than that one line item.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

I am going ask Mark, to answer that he's got the detail.

Mark D. Kemp - Senior Vice President and Controller

About $570 million is mortgage we originate to sale and about a $178 million is construction-to-perm loans.

Randy Raseman - Durham Assets Management

And are there any mortgage assets on the balance sheet?

Mark D. Kemp - Senior Vice President and Controller

Nothing to speak of.

Randy Raseman - Durham Assets Management

Okay, Thank you very much.

Operator

: Your next question comes from the line of Andrew Ebersole with Sentinel Asset Management.

Andrew F. Ebersole - Sentinel Asset Management

I was hoping you could quantify opportunities to receive, your opportunities to receive cash tax refunds this year and then the next year?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes, we have paid about... I can give you the taxes that were from the previous couple of years, that probably the best way to think about it and there is I think about $800 million or so in the past two years the tax was paid.

Andrew F. Ebersole - Sentinel Asset Management

All right. But, I guess the other piece of puzzle is how many, the loses that you expect to book this fiscal year and the... on land and next year and other builder sort of kind a get prepared some guidance as to, that opportunity and it will be helpful, if this is based on your budget, what you guys are kind of planning for?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We are continuing to focus on selling homes and revamping the land position which will help to monetize that asset. And I think that the best way to think about it. It's directly correlated to the majority of it is the deferred tax asset that's we are telling about is directly correlated to the land, the lands so the land needs to transact. Since I not... I know, I'm not giving you a great answer but the reality is that, its really dependent on how much volume we can push through.

Andrew F. Ebersole - Sentinel Asset Management

Okay.And my second question is, I guess, I'd like to better understand the modest free cash flow generations as you guys achieved in the fourth quarter versus some of your peers, which may... small peers like Meritage and Ryland Meritage had about third of the closes that you guys had in the fourth quarter. And Ryland had about half of the closes that you guys had yet. Meritage generated about $150 million in cash flow and Ryland about $300 million. And you guys only about $100 million, so is that a reflection of just more aggressive land development, land acquisition or can you just can provide some colors to why the cash flow it seems to be weak relative to some of your peers?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Firstly, I'll remind you that we are coming into our fiscal fourth quarter which is traditionally our strongest quarter for cash flow by a long shot. So that's the first comment I would give there which regard to my confidence around where the cash is going. And then as we've talked about earlier with one of previous question we evaluate every asset, every quarter on the best strategy for that asset and the incremental cash. And the best way to get to normalized margins is to get to normalized margins is to get is to move through the existing land and get in to new land so to the extent that, that make sense we are going to continuing to move through those assets. But again I would end with saying that we are confident that unsold inventory will come down pretty dramatically in our fourth quarter and we'll have some really good cash in the fourth quarter, in our fourth quarter.

Andrew F. Ebersole - Sentinel Asset Management

All right. Thanks.

Operator

Your next question will come from the line of Zev Halstuch with AllianceBernstein.

Zev Halstuch - AllianceBernstein

Of the construction versus land and development as well as the units of homes under construction for the quarter?

Timothy Eller - Chairman and Chief Executive Officer

We've missed first part of your question. Could you repeat?

Zev Halstuch - AllianceBernstein

Sure. The breakdown of dollars between the direct construction inventory versus the land under development at the quarter end?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

The 6.8 million on the... al right 6.8 billion on the balance sheet about 2.7 was direct construction and 3.7 was land under development and the other 400 was land held for the development and sale?

Matthew G. Moyer - Head of Investor Relations

Zev, this is Matt. Your total homes under construction including models right now are 12,133.

Zev Halstuch - AllianceBernstein

Okay. Great. And then on the JV debt payment, we talk about the 500 cash guidance for the year from homebuilding operations. Would anything in that category come after that or come out of that 500 or that would include the JV debt payments?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

The 500 is cash from ops and our strategy is to continue to look at minimizing our JV debt. So if we have opportunities we will continue to pay down JV debt, but the cash the 500 is cash from ops.

Zev Halstuch - AllianceBernstein

And the JV debt was cash for investing basically?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Right. Financing or investing we want to do.

Zev Halstuch - AllianceBernstein

Okay. Thanks a lot.

Operator

Your next question will come from Faz [indiscernible] with D.A. Capital.

Unidentified Analyst

I am trying to understand the cash tax refund situation as a follow-up question, to the one that was asked earlier. One of your peers reported a fairly large cash tax refund number. So what I am wondering is do you have realized losses which will be generated through assets sales that are lost to book value that you already have had, as of the end of this quarter, that you expect to refund on?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes. We would, and the reason why is, if you think about it, you will impair the land and you can recognized it for tax purposes when you actually build the home and sell it. And so to the extent that we have continue to close homes on previously impaired land, that would turn into a way for us to monetize that deferred tax asset and get a refund. Does that make sense?

Unidentified Analyst

Yes. Has that period... does that period expire the two year look back at the end of your fiscal year or is that December 31st for every year?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

At the end of our fiscal year.

Unidentified Analyst

Got you. So you have sort of this quarter to take them with those actions.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

And all of next year. We have pretty healthy income taxes paid in 06 and 07. And so we will have the remainder of this fiscal year which is through March and then all of next year as well.

Unidentified Analyst

Okay.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

To look back.

Unidentified Analyst

Thank you.

Operator

Your next question will come from the line of David Martin with BlueMountain Capital.

David Martin - BlueMountain Capital

Thanks.

Timothy Eller - Chairman and Chief Executive Officer

David are you there?

David Martin - BlueMountain Capital

Yes. I am here already get my question. Thanks.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Thank you, Mr. Martin.

Operator

Your next question will come from Nishu Sood with Deutsche Bank.

Nishu Sood - Deutsche Bank

Thanks. Actually I had big picture question Tim and Cathy about your cash flows and how they have traditionally been stronger in the fourth quarter. So wondering if you can kind of look into why that might be I mean I imagine it would have to do with the way that you mange your construction your land pipeline a little bit different than it appears. So my question is maybe if you could help us understand that or comment on that, and also whether or not there would be an advantage or disadvantage at this stage in the down turn?

Timothy Eller - Chairman and Chief Executive Officer

Let me just start Nishu and then Cathy can fill in the blanks, its... if you just look at every builder kind of traditionally they have a fourth quarter surge for us, it's actually is a very... it's seasonally strong part of the market. So February and March are typically very seasonally stronger in terms of sales, and to extent that we have inventory, we tend to sell a lot of that inventory and close it in that quarter. And so we have entered... we've entered this quarter with reasonable amount of inventory, and certainly more than we'd like to have. So our expectation is this year we will see kind of the same thing, probably a fairly significant reduction in our unsold inventory, strong cash. And from a development standpoint, the season for developments starting backup really as until April and May for most markets.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

And then, going forward as we apply... as we standardize and improve our core business processes and imply manufacturing discipline, our hope and our goal would be to even that out and so that we don't have this huge... other than the normal seasonality of the market, we wouldn't have the huge cash core in the fourth quarter. It be much nicer to have that on a more predictable consistent basis and the work we are doing on our core business processes will allow that.

Nishu Sood - Deutsche Bank

With the restructuring of your business portfolio have you considered changing your fiscal year into a more traditional home builder type calendar?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

It's absolutely under consideration.

Nishu Sood - Deutsche Bank

Okay. Thanks a lot.

Operator

Our next question will come from the line of Michael Rehaut with J.P. Morgan.

Michael Rehaut - J.P. Morgan

Thanks. Can you hear me?

Timothy Eller - Chairman and Chief Executive Officer

We can.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Good morning, Michael.

Michael Rehaut - J.P. Morgan

Great. Thanks for taking my question. The first is just on the transparent pricing strategy I just wanted see if you can help with the fact that the incentives were up pretty dramatically from what you're describing before you are trying to you know have the nominal price be more inclusive of the incentives up front meaning that I would think the incentives would start to go down. Is the transparent pricing more just being built into the backlog right now or how might it think of the jump in incentives in the quarter?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

You've got it exactly right Michael, as we move to transparent pricing that's going to be on the new sales, well you have to go back and address our backlog which are the current quarter closing and so you'll see the discounts and incentives remain high as we move through the adjustment in that backlog and then as the new sales come through, the discounts on incentives should go to normal levels.

Michael Rehaut - J.P. Morgan

Okay.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

So you've got it exactly right.

Michael Rehaut - J.P. Morgan

Okay.So when you look at the growth margins can you give me an idea I mean do have a feel for what those gross margins in the backlog would be I mean you had about 300 BPs sequential decline to 12.5% in this quarter excluding the charges, what you are looking at going forward?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

As we've continue to say Michael we are one of our solid goals is to structure for profitability even through the trough and so we are working our cost structure every single day pretty strongly, so it's hard to comment on gross margins because that's only going to improve as we continue to address our cost structure.

Michael Rehaut - J.P. Morgan

Okay. And just last question on the gross margins, the... you said last quarter that you had about $20 million benefit from, in the gross margins from prior charges, given the large amounts of repairments that you took last quarter and this quarter now, can you give me an idea what that was for the third quarter and what you think it might be flowing through over the next two or three quarters?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

That numbers actually getting increasingly difficult to calculate and there are number of reasons, but land sales and impaired neighborhoods are really concluding the number and then as we dug into a little bit more every home builder figures are calculate that number differently. So, it's becoming less and less meaningful and so we are not going to provide that anymore we are going to give you as closings in impaired neighborhood and maybe you guys can figure out how to adjust that meaningfully, Matt's got a full schedule of all of the past quarters, he can give you offline, but for this quarter we had 18... 180 closings in impaired neighborhood which will be 28% of our close.

Operator

Your next question will come from the line of David Goldberg with UBS.

David Goldberg - UBS

I am wondering, if you can just give me an idea, what's the idea of the increased discounts and incentives for people that are impact probably going to close, have you scrubbed the people in backlog already, that are currently in backlog, does that process that's kind of ongoing as people come to the closing table?

Timothy Eller - Chairman and Chief Executive Officer

It's a, we have scrubbed down and it is an ongoing process as the mortgage market continues to change as underwriting guidelines continue to tighten as down payments continue to increase, we have, it's a kind of a constant process right now. So, a lot of adjust as reflective of that entire process.

David Goldberg - UBS

And then I guess, I guess my follow-up question was, you know what your average down payment is if you are buying new homes and how maybe compares to say a year ago?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes we can pull the... well we can pull the CLTV's around that point that real quick here.

Cathy R. Smith - Executive Vice President and Chief Financial Officer

Yes David our CLTV really hasn't changed much in over the last three, four years it was 90, at CTX mortgage and it's been in the range of 85 to 90 for the last three years. And as we move to more of FHA it wouldn't surprise me for that to take up a little bit but. For the three-four years it has been in that 85 to 90 on a close loan-to-value basis that include seconds.

David Goldberg - UBS

Okay. If I could speak one more for Cathy. In terms of the charges in the finance and in the mortgage business, can you maybe just talk about the process you go through to determine the bad loans and maybe on kind of look forward basis what is it still at risk?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We do a literally loan-by-loan analysis, if everything is sitting there and we put it in we kind of grade it in four different grades and that helps us to assess the collectively or the risk around that loan and that's towards that grading process and literally loan-by-loan and that's we look at those loan very single quarters so that's how we've got to devaluation the reserves that we have against them. Going forward is a great question we know that we adequately reserve now based on the therefore closer risks we are seeing the area of risks we are seeing and the competitions in California and Florida, but there it will not 100% reserve so therefore by definition I guess we saw some exposure.

Operator

Your next question will come from the line of Alex Barron with Agency Trading.

Alex Barron - Agency Trading

Thanks. Wanted to ask just generally about the communities that aren't open for sale yet, or those land parcels is there plans to continue do open communities, or is that plan to just kind of put those and hold in focus on the closing of communities?

Timothy Eller - Chairman and Chief Executive Officer

Alex as Cathy mentioned earlier. We take a look. We review all of our neighborhoods, active and kind of in the pipeline every quarter to see what the best strategy is for each and everyone of those and from cash flow standpoint as well as the profitability standpoint. So that's something that's ongoing.

Alex Barron - Agency Trading

Okay. Got it. Also had a question on the joint ventures. Was there any... is there any need to make remargin payments this quarter and if so on how many JVs and how much money?

Cathy R. Smith - Executive Vice President and Chief Financial Officer

We've had a little bit of re-margin payments on calls not a lot but we have had a couple. I have in the significant but again we kind of keep it in perspective. We have 18 JVs with leverage and that number will continue to come down so it's not a significant number. And a total of 240 million of debt against that 18 JVs.

Operator

Ladies and gentlemen, we have reached the end of our allotted time for questions. I would now like to turn the call back over to Mr. Tim Eller for his closing remarks.

Timothy Eller - Chairman and Chief Executive Officer

Thanks, Tina, and thank all of you for joining us today. We look forward to discussing our progress during our fourth quarter and year-end discussion in April. Good morning.

Operator

This concludes Centex fiscal year 2008 third quarter earnings conference call. Thank you for your participation and you may now disconnect.

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