Lennar Corp (LEN) 2009 Q2 法說會逐字稿

Good morning and welcome to Lennar's second quarter earnings conference call.

At this time all participants will be in a listen-only mode.

After the presentation, we will conduct a question-and-answer session.

Today's conference call is being recorded.

If you have any objections, please disconnect.

I will now turn the call over to Mr.

Scott Shipley, Director of Investor Relations, for the reading of the forward-looking statement.

Good morning.

Today's conference call may include forward-looking statements that are subject to risks and uncertainties related to Lennar's future business and financial performance.

These forward-looking statements may include statements regarding Lennar's business, financial condition, results of operations, cash flow strategies, and prospects.

Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risk and uncertainty.

Many factors could cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements.

These factors include those described under the caption Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC.

Please note that Lennar assumes no obligation to update any forward-looking statements.

I would like to introduce your speaker for today's call, Mr.

Stuart Miller, President and CEO.

Mr.

Miller, you may begin.

Yes, thank you, and good morning, everyone.

Thank you for joining us for our second quarter 2009 update.

I'm joined this morning as usual by Bruce Gross, our Chief Financial Officer; Diane Bessette, our Vice President and Treasurer; and David Collins, our Controller.

I'm going to begin with some opening remarks about the current housing market in general, then comment on our home building operations, and finally focus on the progress we've made on managing our balance sheet and asset base.

After my remarks, Bruce will provide additional detail on our numbers, then we'll open the phones to your questions.

Of course I'd like to request that in our question-and-answer period, everyone please limit to just one question and one follow-up so that we can be as fair as possible to all participants.

Now, as you can see from our press release this morning, we've had a very productive second quarter.

In the second quarter we saw a discernible uptick in our sales volume, which has convinced me that while there continue to be significant headwinds that limit stabilization and recovery, both for the economy in general and for housing as well, there are some significant positive influences out there that are beginning to shape a more positive future.

The abject pessimism that has defined the overall market sentiment for the past year or more, seems to have given way to a sense that opportunities are available for those who can qualify.

When low price points are offered in the marketplace, we're seeing that there are more anxious buyers interested in making the purchase.

And home affordability is at record highs as well.

Additionally, pent up demand is beginning to reveal itself.

In the foreclosure arena, we're beginning to see a greater number of primary buyers looking to purchase bargain homes, as primary residences, as opposed to investors looking just to make money.

While there might be a temporary oversupply of homes defined by the foreclosures that continue to add to the available inventory, real purchasers are starting to take advantage of interest rates and tax incentives to satisfy real need.

The academics and demographers have long said that stabilized demand for new homes in the United States is in the 1.6 to 1.8 million homes per year range, and current market conditions have driven production to record lows reported yesterday at an annualized rate of some 340,000 homes.

Long term, we are undersupplying the need for homes, and we're seeing evidence that the demand side of the market is starting to weigh in once again.

By no means am I suggesting that we've turned the corner.

I'm only suggesting that we're starting to see signs that there is a corner out there to be turned, and that the fact that there are factors presenting -- that will at some point help make that turn.

We're also seeing that there are fewer impediments out there and signs of danger.

Still, there are other factors that remind us that we still have quite a long way to go.

Foreclosures are building, and adding to inventories at accelerating rates.

Mortgage interest rates have been moving upward and in fact have climbed some 100 basis points over the past couple months.

This negatively impacts affordability.

Tax credit programs that have stimulated purchasers to make purchases are ending in California or coming close to an end nationally.

Unemployment and gas prices are on the rise.

Today's economic environment and housing market is tenuous at best, and still suggests a great deal of downside risk.

But that's materially better than the absolute hopelessness that has existed for so long.

In the context of difficult market conditions, Lennar's strategy has been to streamline our core home building operations for profitability and cash flow, and to position as a pure play homebuilder in a stabilizing and then recovering market.

Concurrently, we've been focusing on the asset management side of our business and have fortified our balance sheet to provide a solid foundation for our operations and to be positioned for growth as market conditions stabilize.

We've continued to make significant progress in both of these areas.

Our home building operating strategy is well defined and focused at the divisional level.

We have four operating regions, Northeast, Southeast, Central, and West, and 29 home building divisions.

Each division is focused on reducing and refining its asset base, identifying its core communities and core product offering, generating current operating cash flow, and operating at break-even or profitability.

Since quarter end, I've continued my quarterly operation reviews by going out to each of our operating divisions to monitor progress, and I'm pleased to say that many of our divisions are already there, and the ones that are not are well on their way.

I can clearly see light at the end of this tunnel.

Divisions that are operating at a profitable level are beginning to look at distressed opportunities to grow and expand organically, leveraging their well-run operating platforms.

While divisions that have not yet achieved profitability are purely focused on getting there.

How do they get there?

It's right product, right cost/price, and right sized G&A.

First, in every division, we've reworked our product to appeal to today's value-oriented, first-time, and move-up purchasers.

These are the customers that benefit most from the tax incentives being offered and from low interest rates.

So today we're focused on offering homes that are priced and designed to offer a great value in each market.

We also know that architecture and product by its nature is very localized.

The value equation is different from Baltimore to Dallas to San Francisco, and as a result, our product strategy is extremely market driven and designed to quickly adapt to market changes, both up and down.

Today, value defines the market while tomorrow the market may demand larger homes and greater specifications.

Given the continuing dynamic shifts in market-driven consumer demand, our operating systems are focused on speed to market for new products that adapt to current market sentiment, and a detailed financial analysis of each product offering.

The second step to profitability has been to provide the right value proposition, meaning the right price to the customer, which is defined by the right cost to construct and the right efficiencies in the field.

As customers have been demanding more affordable, smaller square footage homes, and with volume declining in a shrinking market, we focused on rebuilding a streamlined, centralized, home building machine that will thrive when the market stabilizes and will comfortably scale larger and adapt to changing customer demands as the market expands again.

Today, we have strategically centralized accounts payable, processing, and purchasing functions in three regional operating centers across the country, and we've significantly reduced our construction costs by having shared services executed by a small group of associates.

Through our regional operating centers, we're able to quickly identify our most efficient and higher gross margin plans and provide detailed cost information to our operating division.

Additionally, over the last year, we've reduced the number of floor plans that we offer by approximately 30% in order to additionally promote efficiency.

Centralized purchasing through our regional operating centers has allowed us to leverage on a nationwide basis the expertise of three lean purchasing teams.

These three teams have the most updated and detailed cost information so that pricing and cost knowledge is available to every division every day.

Over the past year, we've debundled labor from materials in all of our bids, which gives us incredible visibility and cost control.

This purchasing structure allows us to procure materials and labor by unit costs versus purchasing by plan or community.

In each region, we are buying materials and labor at the same price across all product lines.

Through this process, we're able to identify the most cost effective plans to build and bring them to market quickly in any of our operating divisions.

This approach has enabled us to reduce our cost per square foot by up to 20%, even while the square footage size of our homes is down by approximately 12%.

As I've gone on my division tours, I am seeing examples of where costs are being reduced even more than these averages, and those cost reductions are translating into meaningful value propositions for our customers.

The third step to profitability for each division is a right sized operating team of home building professionals with the right organizational structure to keep our SG&A low and profit from the market as it exists.

A regional operating structure works with our lean division operating teams to keep our fixed costs down and to stay focused on maximizing cash flow while generating bottom line profit.

As I've gone out to each division, I've met with the entire operating staff and have spoken with the people that are working in each aspect of the division.

The focus and sense of purpose can be felt.

As an example, just yesterday I was in our Chicago division and met with all of the associates that wear the Lennar name badge in that market.

While we've materially reduced the size of the division, the associates are a lean, tight knit group who are determined to get to profitability so that they can begin to look for new opportunity in today's distressed environment.

Clearly, this market has gone through enormous change.

At the peak we employed over 400 associates and occupied 92,000 square feet of office space, and we delivered over 1,200 homes.

Today, we have a group of just 31 professionals.

Our office space is roughly 6,900 square feet, and we're positioned to deliver approximately 225 homes.

This group is rapidly approaching break-even performance and will be looking for new opportunities in a distressed market very soon.

Our team in Chicago has endured significant and painful change, but the spirit and positive attitude of associates like these keep us all focused on the opportunities in these difficult times.

Now, the Chicago example is just one example and is certainly not alone.

I could be speaking of any of our divisions that I've visited.

They're all in same situation, having reduced their operation and having repositioned themselves for a profitable future.

Now, while we've not yet recognized the full impact of all of our initiatives in every division yet, in all of our divisions, as in Chicago, we're well along the path to recapturing profitability.

More importantly, we're positioned to leverage our lean operating structure with minimal incremental expenses as the housing market recovers.

Prior to our reorganization, we operated in extremely decentralized organization, while today we're organized for efficient operation in this most difficult market condition and prepared to grow as opportunity presents itself.

On the balance sheet and asset management front, we've continued to fortify our Company at the corporate level by continuing to manage and restate our land asset while we continue to manage our inventory of completed homes and reduce the number and composition of our joint ventures.

We've continued to review all of our land assets on a quarterly basis, and have restated asset values to match market conditions.

Over the past years, we've significantly reduced our land asset base, which now requires less management time and is a far smaller base to impair, should market conditions continue to worsen.

As I've said in prior quarters, we've done a great deal of the heavy lifting on impairments and are now situated with stated assets that can and will produce improving margins when the rate of decline in market pricing subsides.

While this is an ongoing process in a declining market, we've come quite a long way.

As you can see from our press release, we've continued to reduce the number of our joint ventures.

The number of unconsolidated joint ventures has fallen from its peak at 270 joint ventures in 2006 to 83 joint ventures currently, and that's down from 95 last quarter.

Additionally, we've continued to reduce the maximum recourse debt to the Company to approximately $442 million from $474 million last quarter, and from $1.8 billion at the peak, or approximately a 76% decline.

We'll continue to update the more detailed information on our top ten joint ventures that we filed with our first quarter disclosures, and we'll file that update with our 10-Q in the second week of July.

We hope that these disclosures will continue to shed light on the substantial progress that we are making on this part of our business strategy, and Bruce and Scott will be working to answer questions as you have time to review these materials when they come out.

Our balance sheet remains strong at the end of the quarter with a substantial cash position of $1.4 billion.

Additional, there's nothing borrowed on our revolver, and we have a responsible debt to total capital position net of cash that is at 32.9%.

Our balance sheet and cash positions continue to provide stability as the market declines, and enable us to seize opportunity where distress creates unique value as the market stabilizes.

Accordingly, as you can see in our release today, we have continued to fortify our balance sheet as we seek to provide further buffer against further erosion in the marketplace while having available liquidity to capture opportunity as some markets stabilize and improve.

To that end, we retired $281 million of senior notes in the past quarter, while we issued $400 million of senior notes and approximately $126 million in equity.

In conclusion, let me say that we've made a great deal of progress in our second quarter, even while the market has remained difficult.

We have prepared our Company for market conditions as they currently exist.

We are well prepared for more downside, even while we are beginning to see signs of real improvement.

Although it's too early to say that the market has stabilized, one can sense that resolution is not far off.

Although it is sometimes difficult to find reason to be optimistic in these turbulent market conditions, the home building market will rebound.

It will have to in order to stimulate the rest of the economy back to its feet.

And as the market finds a bottom and begins to recover, we will be well positioned to participate.

At Lennar, we've made significant progress in repositioning our home building business as a scaled down and lean operation.

We strategically positioned our balance sheet to be able to participate as opportunity presents itself.

And we have adequate resources to weather the difficult market conditions that are in front of us.

And we continue to focus on the operational elements that will drive us to profitability and continued positive cash flow in the future.

Thank you.

And Bruce?

Thank you, Stuart, and good morning.

In the second quarter we made significant progress on strengthening our balance sheet and liquidity position, and we improved that liquidity position by generating positive cash flow from operations as well as by accessing the capital markets.

Operationally, we generated cash by carefully managing our inventory.

As Stuart mentioned, we cut our completed unsold number of homes by 53% from 1,321 to 626.

We also continued to reduce our start pace, down 39% year-over-year, to 2,724 homes.

Our homes under construction also declined year-over-year 38% to 4,025 in this quarter.

We continue to reduce our land purchases and land development spend as well.

Land purchases were only $58 million during the quarter, and that compares to $162 million in the prior year's quarter.

Land development spend was reduced to $16 million from $55 million in the prior year's quarter.

Sequentially, our inventory before consolidated inventory not owned, declined from $3.9 billion in the first quarter to $3.7 billion this quarter.

We accessed the capital markets for both debt and equity this quarter.

During the quarter we announced an equity drawdown program to have access to the equity markets in a flexible manner if we choose to issue equity.

During the quarter we issued 12.8 million shares, raising $126 million at an average price just under $10 per share.

Additionally, we raised $400 million of senior notes maturing in 2017, and this debt was issued with an investment grade covenant package.

During the quarter we paid off our maturing 7.625% senior notes totally $281 million.

These capital market transactions, along with the positive cash generated from operations, have positioned the Company with $1.4 billion of cash, which is ample liquidity to fund near term debt maturities, JV fundings, operations, as well as new opportunities as they present themselves.

As Stuart mentioned, there were no outstanding borrowings on our revolver, but additionally I want to mention that we're, as we have been, in full compliance with all of our revolver covenants.

Additional, we reduced our financial letters of credit to $239 million.

That's down from $278 million at the start of the year and down from $728 million at the peak back in 2006.

We ended the quarter with substantial equity of $2.5 billion and ended with approximately 175 million shares outstanding, which is a book value per share of $14.16, and it's close to $19 per share if you add back our deferred tax asset valuation reserve.

Our balance sheet liquidity position improved while at the same time we continued our trend of significant progress towards reducing the number of unconsolidated JVs and related recourse indebtedness.

The maximum recourse indebtedness is down to $422 million, down $52 million from the previous quarter.

First quarter of this year.

And we continue to see success is in restructuring or refinancing joint venture loans as they mature.

The Company has continued its focus on reducing the number of JVs, the 83 JVs that we have at the end of the quarter.

Of those, 32 have recourse debt, 19 have nonrecourse debt, and 32 have no debt at all.

We're confident that we will continue the significant progress in further reducing both the number of unconsolidated JVs and the maximum recourse indebtedness to Lennar.

And we're happy, as Stuart mentioned to go through any questions you have on the additional JV disclosure once that's filed with our Q.

Turning to the operating results for the quarter, as mentioned in the press release, we had a loss per share of $0.11 per share before the impairments and deferred tax asset reserve.

If you look at the average sales price to give a little bit more color, by region, the East was down 13% to $220,000, the Central was down 9% to $197,000.

The West was down 4% to $350,000.

Houston was down 1% to $201,000.

And then the other area was down 10% to $271,000.

Overall, the average sales price decreased to 8% year-over-year to $251,000, and that is net of sales incentives which averaged $53,000 for the quarter, versus $49,000 in the prior year's quarter.

Our gross margin was 14% before impairments.

The pre impairment gross margin declined 190 basis points over the prior year, and the primary driver of this decline was a 220-basis-point increase in sales incentives as a percentage of revenues as our primary focus has been on reducing completed unsold inventory and converting it to cash as we did this quarter.

These higher sales incentives more than offset the progress that has been made in introducing new plans and reducing construction costs.

Turning to impairments, in this quarter we recorded $99 million of valuation adjustments and write-offs, compared to $137 million in the same quarter last year.

The categories were as follows.

Home building was $35 million.

Land sold or under contract was $6 million.

Write-offs of option deposits and preacquisition costs $2 million, and joint ventures $57 million.

We have continued to focus aggressively on reducing SG&A costs, which declined $44 million year-over-year.

SG&A as a percentage of revenue was 14.3%, which improved 110 basis points from the prior year and 510 basis points sequentially from the first quarter.

Throughout this downturn, we have implemented aggressive cost reduction initiatives, resulting in a lean and efficient infrastructure, and as volumes increase, we will see the benefits of leveraging this efficient overhead as noted by this quarter's results.

New orders narrowed their year-over-year decline to 19%.

However, noted substantial improvement up 63% sequentially from the first quarter.

The cancellation rate was 15% for the quarter versus 22% last year, in the second quarter, and last quarter we indicated that we expect to operate at a very high backlog conversion ratio, and it came in at 191% for this quarter.

We recognized significant improvement in our financial services division as we earned a $16.5 million profit this quarter, compared with a $3 million loss in the prior year.

Financial services also implemented aggressive cost reduction initiatives through the downturn and during the quarter we were able to significantly lever this efficient operation, also noted by this quarter's results.

Mortgage pretax increased to a profit of $14 million from a profit of $8.1 million in the prior year.

Low mortgage rates led to increased transactions and a higher profit per loan in the quarter.

This quarter's mortgage capture rate increased to 89% from 85% in the prior year.

Our title Company returned to profitability as it earned $3.2 million compared with a loss of $10.8 million in the prior year.

The Company's financially strong and our operations are lean and efficient from our cost reduction initiatives positioning us well for the ultimate recovery.

And with that we'd like to open it up for questions.

We will now begin the formal question and answer session (Operator Instructions) One moment for the first question.

Our first question is coming from Stephen East of Pali Research.

Your line is open.

Good morning, guys.

Good morning.

First on the JVs, if you could give us an update more broadly speaking, where the charges were occurring.

Your JV loss before charges jumped up year-over-year.

Just wondering what was going on there, and then any land source update you have with the JVs.

Okay.

Let me answer relative to the JV charges.

We had $57 million of charges during the quarter.

And your question, Stephen, we had $59 -- or $60 million in total of losses from the JVs.

Was your question wondering geographically where those charges were?

I was wondering if there were any JVs that accounted for a big chunk of the charges, and then also the $10 million in loss before the charges, what was driving that?

Okay.

There were a few JVs that had larger charges.

A couple of them based in the west coast, that generated the bulk of the loss, and then one that was diversified over different geographies.

And then the $10 million loss before the impairments, there was not one item in particular that stood out.

It was just a combination of losses in different joint ventures.

Okay.

And then you did a great job on the orders, and you all had said you were going to clear out specs, and you did.

As we look forward on the orders, does this give you a big hangover, so to speak, or -- and do you think you can continue to put a similar type of order stream in place?

Well, Stephen, unfortunately, the answer to that is, just as you asked looking forward, and I think that the question looking forward is really market dependent.

But I think the import of your question is -- do we feel that we've stressed ourselves in the prior quarter by kind of stealing from the future, and I don't think we've done that at all.

Okay, great.

Then just the last thing.

On your corporate SG&A, you're at a run rate that you saw in 2004.

How much of that is related to consolidate centralization that you talked about versus just really needing to get that cost structure down further?

Just to clarify, Steve, you said corporate SG&A?

Right.

Were you referring to SG&A?

Yeah, corporate.

The corporate general and administrative expense line that you report.

Well, going through and answering that question relative to how much of that was relating to some of the centralization, the centralization of purchasing and accounts payable that Stuart mentioned, that factors into SG&A, not into corporate G&A.

Okay.

Then if we look at corporate G&A, your total dollars the first half of the year are about the same as they were in 2004.

Is there -- can we expect a better performance there, or is that something that you've reached the bottom on?

No, I don't think we've reached the bottom on corporate G&A.

We've -- we still see opportunities to reduce legal costs, for example, so that there's more room to go down in the corporate G&A area.

Okay, thanks.

Great quarter, guys.

Thank you.

Our next question is coming from Carl Reichardt of Wachovia.

Your line is open.

It's actually Adam Rudiger on for Carl.

I was wondering if you could talk about -- I wanted to exclude any joint ventures or land funds and just talk about directly with Lennar's capital, what kind of inventory investments you've made or what you plan to make.

Talk about finished lots versus unfinished option lots, maybe talk about what the $58 million you said you spent during the quarter was on.

Well, to answer the first part, and Bruce will come back and answer the second part, but as we look ahead right now, and as we're looking in many of our divisions, we think that the opportunities that are presenting themselves to grow organically and to look at next communities are going to be almost exclusively with rolling option home sites.

There's availability in most markets.

We're not going to expand until we've achieved operational efficiency in each market.

But as we do, we will look for those kinds of opportunities.

We don't see any reason to start taking any kind of land risk, and we think that the cash outlay will be small.

And then relative to the land that we did purchase during the quarter, which is down very significantly again, the $58 million is in areas where we're taking down home sites, primarily to put immediately into production, and it was diversified in different markets across the country.

So it wasn't one transaction.

We weren't buying large land parcels.

It's for immediate use in construction in progress.

And did you, during the quarter, tie up any new option parcels?

Excluding JVs, just to direct Lennar investment option deals.

The answer is yes, a couple.

But we won't specify.

Okay, thank you.

You bet.

Our next question is coming from Ivy Zelman of Zelman & Associates.

Your line is open.

Thank you.

Good morning.

Great quarter, guys.

Thank you.

I'm sure you're very pleased with the progress.

I just want to understand.

When you said your starts were down, Bruce, I think you said 37% -- of the starts, how much of it is based on spec, because obviously you guys did a great job of getting your spec down, but you also closed 191% of your backlog.

So when we look at conversion and backlog going forward, I'm trying to gauge and get an understanding of what we should be looking at going forward.

And your spec strategy and conversion.

These starts were down 39% year-over-year to 2,724, and the 191% backlog conversion ratio, I would not expect it to be as high going forward, because we did have a higher number of completed unsold homes that we were able to move and turn into deliveries quickly this quarter.

So I would expect that conversion ratio to come down a bit, and the balance between what started and what sold first continues to be a balance.

It's been running about 50/50.

One of the things that I think is noteworthy, and particularly as I've gone out to the field, I've seen that our cycle time is coming down dramatically just by force of focus.

So that impacts our ability to start to deliver in greater proximity to point of sale.

Great.

Thank you for that.

That just secondly, with respect to your opportunities to go out and capitalize on some of the distress.

We look at your -- I don't know that we got your total lot count, but roughly like a five to six year supply, the way we calculate it, in total.

And realizing that you might have opportunities, some are out there we hear frantically looking for finished lots, trying to tie them up through soft take-downs and minimizing cash outflow, some are buying them and paying more than investors would pay and maybe are more opportunistic on what they think the market will be or just generally more up-beat.

But is some of it also that the finished lots are diminishing in your overall portfolio, and that you can't develop ground right now because ground is arguably still too, I guess, the residual value is either negative or too low, so you can't put money in the ground?

So when everybody says the builders want to buy land, the first question I get from every client is, why the hell do they need land?

They've got a boat load of land.

So it's obviously helpful to everyone to explain how you balance that because you do have returns that are going to be negatively impacted by carrying as much land on the books, despite the fact that you are saying you want to go out and buy land.

Maybe put it into some perspective so investors can understand that.

Thanks, I think that is helpful.

And the answer to that question is, that when we look at the corporate level, and we say, okay, how many home sites do we have, divided by how many are we delivering over the course of the year, of course we can come from a five, six, three, whatever number of years supply, but really when you operate the business, you have to do it at the local level.

And so while we might have land positions that are holdovers from prior purchases, that might be larger land positions that have large number of home sites, those positions might be absorbing at a disproportionately small level relative to -- we might have a ten-year supply in one place and a zero-year supply in another.

So when we're saying we're looking for land opportunities and maybe purchasing, we might be purchasing a new community or additional home sites in an already existing well run community, where we have a short supply, and yet in another part of the Company we might be oversupplied.

You're absolutely right, from a return on investment position, it would be far more efficient if we could divest of some of those longer term land positions, but the market doesn't afford that opportunity right now, and those inefficiencies will remain embedded in our Company's balance sheet for some time.

I think that's across the industry.

So our program is to look very locally, community by community, find stabilization in each of our divisions, get to either break-even or profitability, and then add organically with low-cost homesite by homesite position.

Now, you also noted that there are others that are looking for home sites frantically.

In some markets, there are precious few available.

In other markets, there are home sites available.

So you can't really listen to what one builder or another is saying, because they might be focused on certain markets and not focused on others, where we might be focused.

So while we tend in this conference call to look at the corporate level, when you get down to the division level and community by community, the view of the market and the opportunities that exist are very different on locale by locale.

No, that's perfect, thank you for that.

Lastly, if I can sneak another one in, your comments when you opened were helpful, and you sounded more optimistic, admittedly cautiously optimistic, than you've been in a long time.

What do you think about the tax credit going away and mortgage rates approaching 6%, I know that we've started to see a little bit of slowing, and it might just be summer, kids are out of school, but isn't it -- I think you said it's worrisome, but is it possible we pulled forward demand because in fact people were purchasing and taking advantage, especially in California with the $10,000 new home tax credit that is not likely to be getting more money above the $100 million that they've allocated from what we're hearing?

Look, my personal perspective is that from a demand standpoint, we have pushed demand to a very low level.

If you look at overall home transactions, not just new home transactions, at an annualized program of 340,000, but nationally, I think you are at about -- you're under 5 million a year.

We probably need to transact more than that in order to keep up with population trends.

But today's economic environment is depressing that demand.

I think that there are (multiple speakers)

Isn't it also though -- sorry to interrupt, but isn't it also because your homeownership rates are 67%, that arguably we have people that, maybe the demand isn't going to be as significant, especially with homeownership rates so high?

Well, I think that we can only guess at the answer to that question, because you have -- we can put really, really smart people together in the room, and they will disagree.

There are a lot of people who study this full-time who say that the demand is much greater than we're seeing, and then there are others who say, maybe we've got too many people living in owned homes.

I respect the debate.

My personal perspective is that we're building pent up demand, and at a more normalized time we're going to see it reveal itself.

I feel like we're already seeing that.

I think that in prior quarters, and what I was trying to suggest, in prior quarters, we've seen a lot of activity out there that was primarily dominated by investors who are trying to make money on trading deals.

I'm seeing a much more fundamental primary purchaser enter the market today.

And I'm not talking about our market.

I'm talking about the broader existing home market.

We're seeing when we see foreclosures out in the field that the people showing up to make these good deals are people who need primary housing.

Now, how the market is actually going to reveal itself and evolve over the next years, I don't know, but I do think that we have population pressures that are ultimately going to turn into pent up demand and undersupplied demand at a point.

So I think we're in for rocky roads in the short term, at least over the next year, maybe two, but at some point that's going to turn on itself.

That's my perspective.

Thank you.

I appreciate it.

Sure.

Our next question is coming from Josh Levin of Citi.

Your line is open.

Good morning everybody.

Good morning.

I wanted to ask about the timing of your equity issuance.

Given your significant cash balance and the fact that your stock sells at a steep discount to book, why did you decide to issue equity this quarter as opposed to waiting until some point in the future?

You have until 2011.

That's as long as the dribble out program goes.

Josh, I guess the way we view our balance sheet is kind of from two directions.

Number one, we think it's important to have a good solid balance sheet that's positioned for -- to be stable.

But we also think it's really important in times like these to have an adequate, what we feel is a buffer.

And as I said in my opening remarks, I see reason for some cautious optimism, but there are still significant head winds out there that define a lot of downside risk.

To me, I don't want to raise capital the last minute that I need it.

I want to be out ahead of the curve.

I want to have a buffer, because I'm just not -- I'm not willing to say that we've gotten past this storm.

And so I want to make sure that we have not only adequate capital, to sustain ourselves through this market condition, but I want to make sure that we have adequate capital to sustain and to grow as the market ultimately stabilizes.

So I feel that I want to be three steps ahead of where I need to be.

So we did get out there and raise additional capital through equity offering, as well as debt, and we're going to leave the options open to continue to do the same.

Okay.

One follow-up question.

Again, about the stock valuation.

Lennar, obviously trades at a steep discount to book, and also your peers.

As a CEO and a large shareholder, how do you think about the valuation gap?

Is it something you think about often?

Is it something that can be addressed in the near term, or it just takes time -- it will go away in time?

I realize here, Josh, that I'm talking to investors and analysts, and I want to do that respectfully.

I think a lot more about the day-to-day operations than getting out into the field and making sure that our operations are carefully adjusted to the current market condition, and that we're getting to profitability.

I think at the end of the day, as we perform the way that I'd like to see us performing, and the way that we will be performing, I think that the market will take care of itself.

I think that most people know that I personally have spent the bulk of my time focusing on the operations as opposed to worrying too much about the stock price.

And that's where we're going to see a lot of my time continue to be spent, in the field, working with the divisions to get to profitability.

Okay, thank you very much.

You're welcome.

next question is coming from Michael Rehaut of JPMorgan.

Your line is open.

Hi, thanks.

Good morning, everyone.

First question on the level of impairments, if you go back over the last couple years, you guys obviously had a couple of very large impairment quarters in the third and fourth quarter of 2007, punctuated by 4Q of 2007 with the big transaction that you did.

But over the last six quarters, much more muted, and if you compare to many of your other peers, over the last six quarters, there have been larger impairments.

And typically what has been driving that from their perspective has been that you've had a declining home price environment, and you've actually had to reimpair many communities and sometimes that's caught up in a much larger sense.

I was wondering if you could kind of comment on that and if there are different methodologies that you're using, and why hasn't the continued steady decline in home prices resulted in larger charges over the last six quarters?

I think Bruce and I are fighting over who is going to answer it, but --

No, you're right.

If you go back over the last six quarters, our impairment numbers are lower, and I think what you are really alluding to is we were ahead of the curve in taking our impairments.

We did a very large transaction and moved a lot of land off of our balance sheet with the Morgan Stanley transaction, and you can't impair what you don't own any more.

Then we also had a lot of joint venture investments where we shared impairments with partners.

Now, we have a 20% discount rate as we look at the impairments, so we're looking at this, and I think our assumptions are very conservative, and we've been believing for a couple of quarters that we're near the very end of the impairment process, and the reason that we have impairments still is because prices have been coming down over the last couple of quarters.

We haven't talked about it much, and we're not likely to spend a lot of time on it, but the fact is we did get out early and we reacted to the market condition early.

Bruce is absolutely correct, we sold a number of parcels strategically earlier on in the cycle.

Once you've sold something, you don't impair it any more.

It's gone, in terms of cash.

Additionally, there's been a lot of discussion about our joint ventures, and we've sat back, and we've focused on dealing with our ventures.

In a lot of ways, the term joint venture has become synonymous with something that is not good or evil or something.

But remember, that each of our joint ventures was backed and is backed by an asset, a real hard asset.

That is the way they were structured, and they were structured as risk mitigating programs.

So there might have been debt at the time conservatively put in place, but our ownership, our actual ownership of the land, the asset, and participation in the venture, was somewhere between 10% and 50%.

So we might have had a very small piece of ownership in that overall asset.

And while we tied up and had under control a lot of assets, we were invested in a small percentage of it.

And I think that's working a little bit to our favorite right now.

And I think that our impairment as we go forward, I think that we're taking as conservative and consistent a view of how to impair property as anybody else.

We have suffered through the downward turn in market conditions, and that's why we continue to have impairments.

But I think we're benefiting from the fact that we got out early and we mitigated risk with some of our structures.

Great.

I appreciate that, Stuart.

Second question, on the sales and order pace, and certainly you came in solidly above my number, and you commented on your thoughts of different drivers.

I was wondering if you could perhaps by segment that you break it out perhaps highlight, on a more metro or regional level, particular areas of improvement, sort of on top of the numbers that we see East, Central, West, if there are some regions that have maybe performed better than the segment average or worse.

And also intra-quarter trends.

In your prepared comments, you had mentioned that perhaps more recently with higher rates or with the tax credits starting to reach their expiration, if you have seen any type of slowdown or any type of commentary on a broader base just in terms of month to month how it's progressed.

Well, Mike, first let me say, A, I know that that's a compound question.

So it counts for multiple ones.

You don't get any more.

And second of all, I would never presume to take away from Bob Toll the opportunity to grade each market individually, so I can't step on his turf.

But I can give you the following color.

I can say that pretty much across the board, the tax credit that was offered nationally has been somewhat of an incentive to the marketplace.

It's gotten a number of the markets moving at -- for the first time homebuyers, and that is the $8,000 non-monetizable tax credit that was offered nationally.

I think that what is most notable, though is the California credit, and the California experience, where we have seen a discernible tick-up in our California market, primarily driven by the additional incremental $10,000 tax credit that was offered, and that has been offered in that marketplace, and is really, if it hasn't yet, is on the verge of going away because the funds available were limited and we're coming to the end of that.

But the California example is a really good one in that it has done a lot to stabilize that market.

It has had a meaningful impact, both on volume and on stabilizing pricing as well.

And the fact that that credit is going away will potentially have a negative impact.

The positive side of that is that we're kind of starting to see legislators, both locally in California and nationally, start to recognize that stimulating the market, bringing the demand side back to the market is what is going to stabilize housing prices, and ultimately get the economy overall back on its feet, and I think that we're seeing the key to the kingdom being highlighted right now, whereas what we're also seeing is that the foreclosure prevention programs that have been highlighted and been primary drivers out there are having very little effect.

So the negative is that we could see a fall-off in demand as these programs go away.

The positive is that we're likely to see the program effectiveness that we've seen in California, and to a lesser extent nationally, translate into new programs being initiated.

On the national front you are clearly seeing with Johnny Isakson reintroducing his bill for a $15,000 tax credit and the movement towards monetization, you're seeing that start to kind of get into the active discourse.

And in California, I can tell you I was recently with a group of builders that were with the governor, and it's clear that that governmental group is looking at how they can get more money into the program because they've seen it have a meaningful positive impact in what is a distressed state.

So across the country we've seen impact from these programs.

In California we've seen even more impact from the program.

And I think that we're going to see more programs to help get housing back on its feet and moving forward.

So just before I'm cut off here, returning to the question, any more granular detail on the east region in particular, Florida, New Jersey, Mid-Atlantic, and also any commentary on intra-quarter trends?

Okay, but you can't say another word after this.

On the eastern side, in Florida, we certainly haven't seen the kind of accomplishments that we've seen in California at a market level.

Relative to many of our divisions we are getting to stabilization, break-even and profitability, even in these distressed market conditions.

Along the eastern seaboard, we are seeing a little bit more stabilization and strength, and you really have to look market by market, New Jersey and Virginia might be a little bit stronger than some of the Carolina markets.

I really can't go through each one, though.

I'm not prepared to really go through each one.

Okay.

Next.

Our next question is coming from David Goldberg of UBS.

Your line is open.

Thanks, good afternoon, everyone.

Hi, David.

First question here, talking about kind of looking at new land deals and potentially purchasing lots where necessary.

Wondering how you think about risk control from that perspective.

Should we see home prices come down more in certain areas?

Should we see foreclosure levels start to rise, driving pricing down?

How do you think about risk control in terms of pricing when you look at new lots?

Good question, David.

I think that in our world right now, we're keeping our focus very, very short-term.

For exactly the reasons that you're highlighting.

We're buying each homesite -- we're looking at buying home sites as we need them, because the potential for the market to continue to fall is clearly out there.

And I guess the message I've made to each of our divisions, is if we're going to explore a new opportunity I want to make sure that we're not buying tomorrow's impairments.

So we're making sure that as we take down home sites, we're selling the homes, and we know what the purchase price is, we know what the profit is on that home, and we're not obligated to take down the next two, three, or five home sites without a price adjustment, should we need one.

So we're really focusing on being pretty stiff-backed on anything that we are looking to purchase going forward.

And the turn is fast enough that you're not concerned about price decreases in the -- it's not really that -- after the take-down?

You mean after the take-down of a homesite --

Exactly, but before delivery.

So let's say I sold the home for $150,000, and I've got a 20% baked in profit.

The potential for home values to go down in that market before I actually deliver the home, or the purchase contract being canceled -- I'm certainly at risk relative to that pricing.

But I think we're being pretty conservative and aggressive on pricing and leaving ourselves excellent margin where, if there is further erosion, it's still net a positive net margin.

It might just be smaller.

I think our risk is fairly short-term.

Fair enough.

Second question, you did a good job outlining some of the efforts in terms of supply chain and purchasing and centralization.

I guess what I'm trying to figure out is what's the next step in that process?

Where do you guys go from here?

Now that you have achieved a lot of those benefits, what do you do to cut the cost structure further as you move forward?

Let me just change one word.

You say that we've achieved.

I want to make sure that I was clear, and I think I said achieving.

We're still mid-process in achieving the benefits associated with many of the changes that we have put in place.

There's more to be achieved, and each division, frankly, is at a different point in that time line.

I think the question, where do we go from here, I think that we're getting to a point in our best run divisions where we are at a pretty high degree of efficiency.

I think that we are delivering excellently priced product at a good margin.

I think we are achieving being a low-cost provider by having these national purchasing programs, by disassembling materials and labor and really getting our hands around costs.

I think that the place we go from there, and as I said, within each operating division that has achieved those efficiencies is to organically grow one small community, one small step at a time, and adding profitability in that way I think we'll be fundamentally strong.

Got it, thank you.

You bet.

Our next question is coming from Nishu Sood of Deutsche Bank.

Your line is open.

Thanks.

First question I wanted to ask was, the California tax credit has created a preference for specs clearly, because the credit can only be applied for at the time of closing.

So that probably has had a -- helped you folks out, perhaps more than others, because your skill in handling specs.

I wanted to ask your perspective on what you're seeing in other parts of the country.

In other words, during the spring season, did the low rates, the sense that we're not heading into a great depression, did it also create a similar kind of urgency preference for specs in other parts of the country?

A preference for specs.

I'm not ignoring you, Nishu.

I'm trying to go through in my mind specifically what I heard in the field.

I think it's a mixed bag, and I don't know that it derives exactly from the low interest rates or the tax credit or whatnot.

I think in some markets, we're seeing a greater propensity for people to be looking for something with a nearer term delivery because we're competing so directly against foreclosures.

I think this goes across the industry.

I think it's why you are seeing new home sales come down so dramatically.

The 340,000 figure yesterday was -- that's really life.

And I know that there are calls that people are saying that, boy, we hope that no new homes are delivered, but I think that's pretty dramatic.

I think that the competition against foreclosures that are there available, ready to go is what's driving that orientation towards in some instances more of a desire to have specs on the ground.

Now, I will say that that's -- it's kind of a more local phenomenon, because when you're looking at foreclosures, not all foreclosures are generic or the same.

Many of them are in the inner city.

Many of them are way in the outlying areas.

Some of them are in total disrepair.

To the extent that a community in which we're building is desirable, we don't have to have specs on the ground or under construction in order to compete at all.

So I think it's a local market by local market assessment that answers that question.

Got it.

I guess I was -- I know the debate about specs versus to be built, the preference through the downturn, a debate that's always raging.

I was specifically thinking about during the spring, because your experience relative to the other builders who are, let's say, more fixated on the to be built might give us a sense of whether or not the signs of stabilization, or whatever you might call them, are just capitalizing on a near term pulling forward of demand or, as you were describing is, might be the beginning of something more sustainable.

Well, first of all, I hope I haven't come across as saying that I think that I'm seeing something more sustainable.

I'm just saying, the one thing that I feel might be sustainable is I think that the mentality of the country has gotten out of this complete negative downward spiral mentality.

But that doesn't completely offset the high interest rates, the more foreclosures, gas prices going up, unemployment going up.

So we -- there are a lot of head winds out there.

I don't think there's an answer to your question.

I think that we're going to have a bumpy road where there are going to be choppy data points that convince us one day that there's more downside and the next day that we're stabilizing.

And I think that we have to be prepared for the fact that we're not going to get a clear shot from Lennar, from the other builders, or from the market itself.

And there's just going to be a bumpy group of data points that define where we're going for the time being.

Got it, great.

Very quick cash flow question.

Did the quarter include the payment for the $140 million recap of land source?

No, that would be a third quarter transaction would be our expectation if it gets approved.

If it gets done in the third quarter.

Okay.

Thanks a lot.

Our next question is coming from Dan Oppenheim of Credit Suisse.

Your line is open.

Good morning.

Thank you very much.

Was wondering, based on the more positive market conditions now, evidence -- as you think about the equity issuance, would you be more hesitant to issue equity at a price during the second quarter?

How do you look at that?

We're going to leave all options open, Dan.

We're trying to be smart about how we think about issuing equity.

I think if you look at the way that we executed in the first quarter, when you talk about today's price, it moves around a lot.

It's moving around a lot today.

I think that we've tried to be opportunistic.

If you look at where we issued stock in the first quarter, we really stay tuned to the marketplace.

We're not saying today that we're going to be issuing more stock and putting more equity out there, but we're not taking it off the table, either, and we'll see what happens.

Great.

Then the second question, just wondering, I think you appropriately talked about the affordability issues on the positive side, people coming back to market, but also the interest rates and such.

Wondering about one other issue we've heard about recently in terms of the appraisals (inaudible) -- are you finding more challenges with this, either during May or subsequent to the end of the second quarter?

It's been pretty consistent all the way through.

The appraisal issues are out there, and they are very real.

And we're finding a number of instances where we can sell a home and it's hard to get an appraisal, and this is a fight that takes place.

We're going to be fighting this trend for some quarters to come as the market kind of repositions itself.

So I think that part of the problem of stabilization is going to be the appraisal market and how you get financed in normalized market conditions.

Great.

Thanks very much.

You bet.

Our next question is coming from Timothy Jones of [Wassermann & Associates].

Your line is open.

I see you're keeping the best for last.

We're not going to let you be last, Tim.

Okay, guys.

Here we go.

I agree 100% that you've been ahead of the market on your write-downs, but I'm very concerned about this $50 million write-down in your JVs, which is obviously two areas in the West, because that's what's where the $50 million is.

And I want to know why -- were they in California?

Where were these two operations?

And why weren't they written down earlier?

Were you getting -- were your partners trying to hold you back from taking the write-downs?

Because that West has been bad for a year or two.

Yes, Tim, we go through this process every quarter, and with the decline in prices that we've seen out there, we've crossed over to the point where we felt there was an impairment necessary this quarter, then we discounted the cash flows as well.

We didn't think that our full investment in those joint ventures would be recovered, but we look at these very close.

We've been very conservative with this.

If you go back quarter by quarter, we've had much higher write downs in investment and JVs.

But this quarter, we fell over the cliff on a couple of joint ventures out in California, and it required a write-down.

They both were in California.

Yes.

Second question is, and I applaud you for the 20% reduction in square footage.

Can you sort of give me a guess as to how much of that is getting better pricing from your vendors, reduced labor costs from your suppliers, maybe less amenities, and more importantly, redesigning and increasing the days to build the house and what -- can you give me a days number, what has it gone from to construct the house?

Tim, that's a great question.

And I strive to get the answer to that question at each division as I've gone out, and the answer is, it's very different in each of our divisions, and so when you roll it up and try to look at it on a national basis, any of those percentages really -- they don't apply.

So let me first correct the first piece of information.

We said 12% in reduction in square footage.

It was a 20% reduction in construction costs.

Talking about the 20% reduction --

So the reduction in construction costs derives from the following places.

You are right, in part it derives from the reduction in features included in the home, and in part it's materials and labor costs.

And I would have to say, and this is kind of a guess, because it would be a compilation of a lot of different divisions with a lot of different data points, but my guess is it's probably about 50% from pure construction cost reductions, and 50% from efficiencies in the home itself.

And when I say that I mean reduction in square footage, reducing the number of inclusions.

And then I don't think I would include in that equation the efficiencies that come from cycle time reduction.

We would see those flow through more in the finance costs and the interest on assets deployed.

So that efficiency would show up in a different place, so it wouldn't be part of that equation, and then the efficiencies that we're seeing in the way that our field is structured would flow through G&A.

So on the pure cost side, I'd have to say that it's probably somewhere around 50% is reduction, just renegotiating contracts, 50% comes from efficiencies in what we're producing.

Then there's another piece that's an interest reduction by having fewer assets employed for a shorter period of time, and then another piece in the SG&A part where we've reduced what it takes to have in the field to actually build the homes or our purchasing departments that have been regionalized.

Good answer.

Thank you.

Next question is coming from Megan McGrath of Barclays Capital.

Your line is open.

Hi, thanks.

Just wanted to follow up on a couple of earlier questions.

First, a different way to ask I think a little bit what Nishu was asking around specs, which is, if we've seen the California tax credit put some momentum into the market, and assuming that the federal tax credit does not get extended at the end of the year, are you looking out six months ahead and thinking about building more spec towards the end of the year to ensure that buyers can close on the home by the end of the federal tax credit?

No, we're really keeping our spec levels very close to the demand levels that we're seeing in the market currently.

In areas like California, we are anticipating that those demand levels will trail off, and make the assumption that we're not going to see an extension of the program for the time being.

And that's why you've seen our starts go down.

We're really trying to keep very tightly focused on where we see the market going.

Assuming the worst and hoping hope for the best.

Additionally, it's why we're so focused on getting the cycle time down.

I've got to tell you, I've spent a lot of time in the field with [Rick Beckwitt], and there isn't a time that goes by that he's not drilling down on what is the cycle time and how are we bringing it down and how are we getting focused on maximizing or minimizing the number of days it takes to build a home because we want to make sure we have the fewest number of specs anticipating that the market has some more downside risk.

Okay, thanks.

Just a follow-up.

A lot of talk today in the last couple weeks on mortgage rates.

Just wondering if you have any actual color or anecdotes, what you've been hearing from people out in field of the impact of these higher rates.

Is it actually forcing folks to walk away, just bringing fewer people in the door?

What are they telling you?

No, higher rates are clearly impactful -- directly impacting affordability.

It's very clear that our federal government is well aware of that as they try to buy mortgages and securities in order to try to drive rates down.

It's not all that effective.

But in the field, it's very clear that as rates have ticked up, the first impact as rates tick up, you get an increase in traffic and purchases, people wanting to purchase, but that dissipates pretty quickly as people are priced out of the market.

At the first impact comes from the fact that people want to get in before rates get away from them.

The second impact is that people who -- as people start to take a look at the -- their payments, the payment has taken them out of the affordability range, and so we see a subsidence.

So far we're still at historically low interest rates, so -- I don't want to say strong demand, but there's demand out there.

But we are threatened clearly by interest rates getting away from us and driving affordability down.

Okay, great.

Thank you.

Our next question is coming from Jay McCanless of FTN Equity.

Your line is open.

Good morning.

I had a product mix question.

Wanted to get an idea of what percentage of the neighborhoods that you're carrying now are entry level and first to move up, et cetera, and do you have any kind of target range for where you want the product mix to go?

Product mix, as I noted in my opening comments is a very locally driven program.

I would say that our first time orientation has gone up materially, but I can't give you a number because I know through it be wrong.

It would be a guess.

I haven't dissembled that on a corporate basis.

We've looked at it in the field on a division by division basis, but it's gone up materially for first time homebuyers and also for really first time move-ups that are very value focused.

I'd say that probably 75%, 80% of our business is in the real value oriented side of our business, and that would mean your first time buyer and your first time move up at the lower end price points.

Okay.

And then for the new land that you might be looking at, are you looking specifically to add to that first time first to move up count, or are you looking across the board at opportunities?

Well, we're looking across the board, but today we are primarily focused on the two segments that I highlighted, and that it's really at the value end of the spectrum.

So I'd say that in almost all instances, where we're looking for something new, it's in order to provide a price leading value to the marketplace.

Great, thank you.

You're welcome.

Our next question is coming from Joshua Pollard of Goldman Sachs.

Your line is open.

Good afternoon.

My question is around cash flow, and I'm trying to mirror a couple of comments that were made.

The first is on the land acquisition strategy to bring in fresh lots, finished lots, rolling option strategy.

I'm trying to mirror that with the potential land source take-down.

Can you just sort of mirror how those two fit into your strategy, which seems most recently to be very short term, and could you also talk about your strategy on specs?

Couple of builders talked about increasing the specs with some stimulus that's out there, and you guys look to have it pretty low spec per community count, so is there any reason to be building that up from here?

And then cash flow you expect to generate from your specs.

Thanks a lot.

Sure.

First of all, as it relates to specs, no, we don't anticipate building it up.

In fact, we're continuing to keep it very tightly reigned in.

And I think that, again, given our cycle time reductions, that are tangible today, we really can see how impactful they're becoming.

I think we're going to be able to keep our spec level down and still keep enough current inventory available to the market to make us an attractive alternative to the foreclosure options that are out there.

As it relates to the first question, the question of land source, land source is a unique opportunity.

It's an opportunity that we spend a lot of time and put in a lot of invested dollars in.

We have a unique knowledge of that particular land deal, and we will be overseeing and managing -- well, we won't actually be.

We'll be setting up an independent entity that will oversee and manage it.

That is a discrete, unique investment that, given the opportunity, should it materialize, we will go forward with.

It is an anomaly, given the kind of opportunities, an anomaly in the opportunity set that we will be participating in going forward, and we think that land source itself might ultimately find opportunities to grow itself without additional capital infusions from us or the other partners.

So when you think about -- when you think about the specs that you have left, you guys have cut them in half, you think about a potential land source, cash infusion, you think about keeping your specs sort of tightly reigned in, it doesn't sound like you guys are looking for another 50% reduction here in the next couple months or couple of quarters what.

What do you guys think about cash flow in the second half of the year?

Is it positive?

Is it negative?

Is it close?

Is it big?

Is it little?

Could you sort of give some idea of what you guys think you can do for cash flow in the second half of the year?

Well, as I noted, at each division level, we're highly focused on getting to profitability, break-even, and positive cash flow.

And as I've gone through, I've seen a lot of evidence that we're getting in that direction.

Of course cash flow is highly dependent on where the market goes, and as I said, I'm making no predictions on where the market is going.

I see some positive influences and I see a lot of headwinds.

We are going to get a lot of rocky data points.

So predicting cash flow is tantamount to giving guidance.

As to where deliveries and other things are going to be over the next quarters, and I'm going to have to let the market kind of dictate that trail.

With that said, we're certainly managing our business to keep cash flow as positive as it can possibly be, given the amount of business we've got.

Clearly an investment in land source will have a negative cash flow impact, a positive investment impact over time, but a negative short-term cash flow impact.

Thank you, Stuart and Bruce.

You're welcome.

And why don't we take just one more question.

Our next question is coming from [Eric Landry] of [Morning Star].

Your line is open.

Thank you very much for taking my call.

You bet.

I notice you're putting order values on the releases now from the beginning of the year, I believe, is that right, Bruce?

Yes, the backlog value dollars are included at the end of the release.

Order value dollars.

Do you have fourth quarter?

Order dollar values are also in the release.

But you didn't do it last year.

Do you have fourth quarter handy?

No, I do not have that handy.

Okay.

One more question.

Stuart, I'm a little bit confused.

This is probably, although, conservative, you're probably the most positive I've heard you in several quarters, yet you just went out and issued stock at two-thirds of book.

Was there a timing difference between when you became a little bit more positive than when you issued the stock, or is it something else?

It's one of the problems with being me.

I think the problem is that I've called it like I've seen it every step of the way.

It hasn't been just the past quarters.

It's been the past three years.

I've been intensely negative.

I've tried to be straight, and I think that while there have been some optimistic views out there, I've tried to call them as I've seen them.

I hope I haven't come across as being optimistic right now.

I hope that I've come across as balancing the fact that there are some positive initial signs, and at the same time I see some significant head winds, significant.

The increase in interest rate is very concerning, and I don't know if we can keep a lid on them.

Very important.

The elimination of the tax credit program is significant.

I'm hopeful that good minds will see the virtue of stabilizing this housing market.

I think that higher gas prices is important.

I think that higher unemployment continuing to climb, and it is, is really important relative to our industry, and these are all still negative.

I think the single most important positive I see is the lifting of the confidence cloud where I think that people are coming out of their -- they're coming out of their basement and getting back out into the sunlight a little bit, and just that little bit of confidence could be a positive that kicks us into some form of recovery.

But I'm using the words could and might and I'm seeing initial evidence.

Those are the words that I'm trying to frame.

And I don't in any way mean to suggest that I'm positive.

Yes, we issued equity in small proportion during the past quarter at a steep discount to book.

I have a healthy respect for the possibility and real possibility that the market could have some more downside risk, and I am going to be prepared for that with a healthy, fortified, buffered, balance sheet, and so the statement that I'm making is, I hope that we're going to see positives reveal themselves, but I am continuing to prepare for the worst.

And if the positives come out, the rest will take care of itself.

Great.

Thanks.

I was just talking on a relative basis to what you have said before.

There's been, in my opinion, a little bit of a ship.

Real quick, Bruce, did you give inventory numbers.

Just, by the way, that's the problem with being me, that little shift with me, everybody interprets as a positive.

Yes, I gave some inventory numbers sequentially it went from $3.9 billion to $3.7 billion excluding the consolidated inventory not owned.

Thank you very much.

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