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Operator
Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Pulte Homes Incorporated earnings conference call.
My name is Eric and I'll be your coordinator for today.
At this time, all participants are in a listen only mode.
We will facilitate the question and answer session towards the end of the conference.
(OPERATOR INSTRUCTIONS).
I would now like to turn your presentation over to your host for today's call, Mr.
Calvin Boyd, Vice President of Investor and Corporate Communications.
Please proceed.
- VP IR, Corporate Communications
Thank you, Eric.
Good morning and thank you for joining us to discuss Pulte Homes financial results for the three months and year-ended December 31, 2007.
I am Calvin Boyd, Vice President of Investor and Corporate Communications.
You have all had a chance to review the press release we issued last night detailing Pulte's fourth quarter 2007 operating and financial performance.
On the call to discuss these results are Richard Dugas, President and Chief Executive Officer, Steve Petruska, Executive Vice President and Chief Operating Officer, Roger Cregg, Executive Vice President and CFO, and Vinny Frees, Vice President and Controller.
For those of you who have access to the internet, a slide presentation available at www.Pulte.com will accompany this discussion.
The presentation will be archived on the site for the next 30 days for those who want to review it at a later time.
As in prior conference calls I want to alert everyone listening on the call and via the internet that certain statements an comments made during the course of this call must be considered forward-looking statements and defined by the Securities Litigation Reform Act of 1995.
Pulte Homes believes such statements are based on reasonable assumptions but there are no assurances that actual outcomes will not be maturely different from those discussed today.
All forward-looking statements are based on information available to the Company on the date of this call, and the Company does not undertake any obligation to publicly update or revise any forward-looking statements as a result of new information in the future.
Participants in today's call should refer to Pulte's Annual Report on form 10-K for the year-ended December 31, 2006 and subsequent forms 10-Q for a detailed list of the risks and uncertainties associated with the business.
As always, at the end of our prepared comments, we will have time for Q & A.
We will wait until then before opening the queue for questions.
I'd now turn the call over to Richard Dugas for his opening comments.
Richard?
- President, CEO
Thank you, Calvin and good morning, everyone.
For the homebuilding industry, the year 2007 will likely be remembered as one of the most difficult and challenging in decades.
Factors that signal the beginning of this downturn such as high cancellation rates, elevated supply of for sale homes, both new and existing, and -- (Technical Difficulties) Okay.
My apologies.
Should we just start with your comments, Calvin?
- VP IR, Corporate Communications
Yes, let's do that.
Just in case.
Thank you for joining us this morning to discuss Pulte Homes financial results for the three months and year-ended December 31, 2007.
I'm Calvin Boyd, Vice President of Investor and Corporate Communications.
You have all had a chance to review the press release we issued last night detailing Pulte's fourth quarter 2007 operating and financial performance.
On the call to discuss these results are Richard Dugas, President and Chief Executive Officer, Steve Petruska, Executive Vice President and Chief Operating Officer, Roger Cregg, Executive Vice President and CFO, and Vinny Frees, Vice President and Controller.
For those of you that have access to the internet, a slide presentation available at www.Pulte.com will accompany this discussion.
A presentation will be archived on the site for the next 30 days for those who want to review it at a later time.
As in prior conference calls i want to alert everyone listening on the call and via the internet certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the securities and Litigation Reform Act of 1995.
Pulte Homes believes such statements are based on reasonable assumptions, but there are no assurances actual outcomes may not be materially different from those discussed today.
All forward-looking statements are based on information available to the Company on the date of this call and the Company does not undertake any obligation to publicly update or revise any forward-looking statements as a result of new information in the future.
Participants in to this call should refer to Pulte's Annual Report on Form 10-K for the year-ended December 31, 2006 and subsequent forms 10-Q for a detailed list of the risk and uncertainties associated with the business.
As always at the end of our prepared comments, we will have time for Q & A.
We will wait until then before opening the queue for questions.
I will now turn the call over to Richard Dugas for his opening comments.
Richard?
- President, CEO
Thanks, Calvin and good morning everyone.
For the homebuilding industry, the year 2007 will likely be remembered as one of the most difficult and challenging in decades.
Factors that signaled the beginning of this downturn, such as high cancellation rates, elevated supply of for sale homes both new and existing, and the tightening of mortgage availability simply worsened as the year progressed.
By the end of the year gross margins remained under pressure as the competition for home sales intensified during this market downturn.
Consumer confidence continues to be depressed, particularly with higher energy prices and the fear of a recession on the minds of many potential home buyers.
The aggregate impact of the above factors was the main force that led to Pulte's first annual loss in the company's 58 year history.
Our Fourth Quarter 2007 net loss was due largely to sizeable impairments and land related charges, the write-off of most of our deferred tax assets, along with goodwill impairments taken during the period.
The presence of these charges reflects the continued decline in sales and the ongoing pressure on home prices due to increased competition.
Roger's prepared comments will cover these charges in more detail.
However, during this challenging period, we embarked upon a set of short-term goals that we deem prudent in such an industry downturn.
We're pleased to report we were successful in achieving these goals.
Let me take a moment to reflect on some of the successes.
First we generated positive cash flow during the year, particularly in the fourth quarter.
We ended the year with a cash balance of approximately $1.1 billion, an increase of about $900 million from the end of our third quarter 2007, meeting our goal of $1 billion of cash at year-end is a significant accomplishment.
We thank our field operators as they generated the necessary sales and managed land acquisition and development spending in order for this goal to be reached.
Second, we generated a profit from continuing operations before consideration of charges related to land, goodwill and deferred taxes.
The profit realized exceeded the upper end of the guidance we provided during our third quarter earnings call.
And finally our overhead spending was substantially lower than last year's fourth quarter.
We continue to size our business for reduced demand levels and the result is a leaner overall structure.
The success realized in reaching these goals is part of our pursuit to return our core operations to profitability, excluding any impairments, write-offs and land related charges.
Although we were able to accomplish this for the last two quarters, the challenging market conditions that plagued 2007 will likely have a significant impact on 2008 as well.
While in the midst of this downturn, generating sales continues to be difficult.
Increased competition in most of our markets continued to put pressure downward pressure on our sales prices.
Although forced to price our product competitively given this challenging environment, sales levels are still depressed as compared to prior periods.
As a result, we continue to ratchet back our investment in new land purchases and land development.
As we look at house and land inventory, properly managing the number of spec homes and controlled lots are top of mind.
Despite continued high cancellation rates, we were able to drive spec inventory levels lower, a substantial accomplishment in this weak environment.
We are also successful in lowering the number of controlled lots.
Overall, driving down house and land inventory levels continues to be one of our primary goals.
It is widely believed that the challenges experienced by the homebuilding industry in 2007 will impact operations for 2008 and beyond.
The depth and duration of this downturn remains difficult to determine.
As this uncertainty continues to linger, Pulte will be persistent in pursuing its short-term goals of properly managing inventory, aligning SG&A expenses to match the current demand environment, generating cash, and maintaining overall Balance Sheet strength.
We are committed to these short-term goals and have demonstrated our ability to deliver on our objectives.
Although managing prudently during this industry downturn is paramount, we will not lose sight of the long term drivers for this industry.
Demographic trends, household formation and population growth will play an important role in creating a stronger demand for new homes in the future.
As the industry eventually emerges from this challenging operating environment, the combination of our short-term strategy and long term view will position Pulte to be a stronger, leaner, and more efficient industry player.
Lastly, although somewhat overshadowed by the severity of the housing recession in 2007, our outstanding Pulte employees continue to do an excellent job during such challenging times.
I continue to be thankful for the dedication, committment, and can-do attitude of the Pulte team.
Thank you and now let me turn the call over to Roger Cregg.
Roger?
- EVP, CFO
Thank you and good morning.
Fourth quarter homebuilding net new unit order rate decreased approximately 29% from the fourth quarter last year on 8% less communities versus the same quarter last year.
Revenues from home settlements for the homebuilding operations decreased approximately 35% from the prior year quarter to approximately $2.8 billion.
Lower revenues for the period were driven primarily by lower unit closings that were below prior year by approximately 31%.
The average sales price decreased approximately 6% versus the prior year quarter to an average of $319,000 per home.
In the fourth quarter, land sales generated approximately $77 million in total revenues which is an increase versus the previous year's quarter of approximately $32 million.
Homebuilding gross profits from home settlements including homebuilding interest expense for the quarter decreased versus the prior year quarter by approximately 99% to approximately $3 million.
Fourth quarter homebuilding gross margins from home settlements as a percentage of revenues was 0.1% compared to 11% in the fourth quarter of 2006.
The decreased margin conversion versus the prior year quarter is attributed to lower closing volumes, land and community valuation adjustments in addition to increased selling incentives.
Adjusting the current quarter for land and community valuation charges, the gross margin from home settlements as a percentage of revenues was at a run rate of approximately 11.6% for the quarter.
The fourth quarter benefited from the impact of prior quarters' land and community valuation adjustments by approximately 338 basis points, or $94 million.
Additionally, homebuilding interest expense decreased during the quarter to approximately $72 million versus approximately $93 million in the prior year.
Included in the interest expense of $72 million is an additional $20 million of expense related to the land and community valuation adjustment taken in the current quarter.
Also included in the gross margin for the quarter was a charge related to land and community valuation adjustments in the amount of approximately $298 million.
The fourth quarter, we tested approximately 180 communities for potential impairment and valuation adjustments.
We recorded valuation adjustments on approximately 118 communities for the fourth quarter.
The total gross loss from land sales posted for the quarter was approximately $56 million.
The loss is mainly attributed to the fair market value adjustment in the current quarter for land being held for disposition in the amount of approximately $66 million which is included in the land cost of sales.
The gross profit contribution from specific land sales transactions were approximately $10 million for the current quarter.
Land sales transactions during the quarter included single family custom lot sales, along with residential and commercial land parcels.
SG&A expenses as a percentage of home sales for the quarter was approximately 8.9% or $247 million, a decrease of approximately $59 million versus the prior year quarter.
Additionally, the current quarter also included approximately $6 million in severance charges related to further overhead reductions made during the quarter.
Overall, we exceeded our restructuring expense reduction target announced in the second quarter of 90 to $110 million, reducing expenses in the third and fourth quarter by approximately $150 million.
In the other income and expense category for the quarter, the expense of approximately $159 million includes the write-off of land deposits and other related costs of approximately $35 million associated with land option contracts that will be determined not to exercise.
Additionally, evaluation adjustment of approximately $85 million related to certain investments in unconsolidated joint ventures.
Also included in the quarter is an impairment charge related to goodwill of approximately $34 million.
In accordance with FAS 142, we determine the as a result of the current market conditions our book value exceeded the fair value in our Florida reporting segment, resulting in the impairment of goodwill.
Recapping the components of the $509 million in impairments and land related charges for the fourth quarter, we have included in the webcast a slide breaking out the charges by categories and by reporting segment.
Additionally in the fourth quarter, we dropped land options representing approximately 4800 lots with a purchase price value of approximately $343 million.
The homebuilding pre-tax loss for the fourth quarter of approximately $459 million resulted in a pre-tax margin of approximately a negative 16% on total homebuilding revenues.
Excluding the charges related to valuation adjustments and land inventory and investments, land held for sale, the write-off of land deposits and other related costs, goodwill and restructuring charges, homebuilding pretax margins converted at approximately 2.9%, or pre-tax profit from operations of approximately $84 million for the current quarter.
At the end of the fourth quarter, homebuilding operations had a backlog of 7890 homes, valued at approximately $2.5 billion, compared to 10,255 homes valued at $3.6 billion as of the prior year quarter.
The fourth quarter pre-tax income from Pulte's Financial Services operations was approximately $10 million or a decrease compared with prior year quarter of approximately $ 19 million.
The decrease is mainly attributed to lower revenues from decreased volumes.
The level of adjustable rate mortgage products originated during the fourth quarter of 2007 decreased from approximately 23% of origination dollars funded from our warehouse line in the fourth quarter of the previous year to approximately 3% this year.
Pulte Mortgages capture rate for the current quarter was approximately 91%.
Mortgage origination dollars decreased in the quarter approximately $1.2 billion or 42% when compared to the same period last year.
The decrease is related to the overall volume decrease in the home builder closing activity for the quarter.
The average FICO score of our loans closed for the period was 738, with 82% of the loans averaging a FICO score greater than or equal to 681.
This is consistent with our analysis performed for the prior quarters this year.
The fourth quarter mortgage environment continued to experience tighter mortgage lending standards and increasing down payment requirements.
In the other non-operating category pre-tax loss for the fourth quarter of approximately $5 million includes mainly corporate expenses of approximately $8 million offset by $3 million in net interest income related to our cash balance in the quarter.
During the fourth quarter we established a valuation allowance on deferred tax assets, resulting in a non-cash, after-tax charge of approximately $622 million.
In a accordance with FAS 109, we assessed with our auditors and determined that a valuation allowance should be established based on the consideration of all available evidence using a more likely than not level of assurance standard.
In making this determination we considered all objectively verifiable evidence in accordance with FAS 109 requirements as to the recoverability of the deferred tax assets.
Accordingly, expectations about future taxable income are overshadowed by our loss experienced in the recent year, and such expectations are not objectively verifiable under FAS 109.
Despite the accounting treatment, the tax code currently provides the ability for a two year carry back and a 20 year carry forward to realize the economic value of these assets assuming the generation of taxable income in the future.
The net loss from continuing operations for the fourth quarter was approximately $893 million or a loss of $3.54 per share, as compared to net loss of approximately $8 million or $0.03 per diluted share for the same period last year.
Income from discontinued operations of approximately $19 million for the fourth quarter represents refundable income taxes related to our discontinued Mexico homebuilding operations.
The net loss after discontinued operations for the fourth quarter was approximately $875 million, or a loss of $3.46 per share.
The number of shares used in the EPS calculation was approximately 252.5 million shares for the quarter.
Moving over to the balance sheet for the fourth quarter, we ended with a cash balance of approximately $1.1 billion, increasing approximately $959 million from the third quarter of this year.
House and land inventory ended the quarter at approximately $7 billion.
Excluding the inventory adjustments for the fourth quarter, total inventory decreased approximately $780 million from the third quarter.
House inventory excluding land for the quarter decreased approximately $480 million related to the seasonal increase in home closings for the quarter.
Land inventory during the fourth quarter, excluding adjustments, decreased approximately $300 million as land relief offset rolling lot option take downs and land development spending.
After generating approximately $1 billion in net cash during the fourth quarter, we paid down $25 million on our revolving credit facility and have no outstanding balance drawn on the facility at the end of the quarter.
The company's gross debt to total capitalization ratio was approximately 44.6% and on a net basis 35.9% for the fourth quarter, reflecting the additional deferred tax valuation allowance for the quarter.
Interest incurred amounted to approximately $59 million in the fourth quarter, compared to $71 million in the same period last year.
Pulte Homes shareholders equity for the fourth quarter was approximately $4.3 billion.
We repurchased no shares during the fourth quarter and the Company has approximately $102 million remaining on our current authorization.
Now looking forward to the first quarter of 2008, and under the SEC regulation FD guidelines we provide the following guidance on our current expectations and projections.
First quarter earnings per share are estimated to be a loss in the range of approximately $0.15 to $0.30 per diluted share.
This range does not include a tax benefit or the potential for additional land valuation adjustments, option deposit and other related charges.
Although we may incur additional write-offs it's uncertain at this time as to the estimate of the amounts.
This earnings per share calculation is based on approximately 252 million fully diluted shares.
Unit settlements in the first quarter of 2008 are projected to be in the range of approximately 4600 to 4700 deliveries.
Average selling prices for closings in the first quarter are estimated to be approximately $299,000.
The projected average selling price is primarily being driven by product and geographical mix as well as additional incentives for the homes projected to be delivered during the first quarter.
Gross margin performance from home settlements as a percentage of sales for the first quarter is anticipated to be in the approximate range of 10 to 10.3%.
Projected gross margins for the quarter primarily reflect community pricing strategies in generating sales momentum and pricing incentives experienced over the period in response to local market conditions.
In addition, this gross margin range includes an estimated 75 basis point improvement from the recovery of additional inventory valuation adjustments taken in the fourth quarter of 2007.
We are currently projecting no land sale gains for the first quarter.
As a percentage of sales, SG&A is expected to be in the range of 14.4 to 14.6% for the quarter, an improvement of 110 to 130 basis point conversion over the first quarter of 2007.
The homebuilding other income and expense category for the first quarter, we're projecting an expense of approximately $5 million to $6 million.
Pre-tax income in our Financial Services operation is expected to be approximately 5 to $6 million for the first quarter.
Total other non-operating expenses are projected to be 1 to $2 million for the first quarter, with other non-operating expenses partially offset by increased net interest income.
For the first quarter tax rate, we have chosen to take a conservative approach in our guidance and are projecting no tax benefit due to the complexities associated with FAS 109.
Given the uncertain and challenging market environment, we're offering no full year outlook for 2008 at this time.
We'll continue to assess conditions through the next quarter and provide any update accordingly on our first quarter conference call.
We are focused on cash management in house and land inventory.
We're targeting ending the year 2008 with an additional increase in our cash position of approximately $900 million to $1.1 billion, or an ending balance of $2 billion to $2.2 billion, less any senior debt repurchases that may be completed during the year.
Additionally, with this level of cash, we anticipate no outstandings on our revolving credit facility at year-end.
We have continued to focus on reducing our land pipeline, generating cash and maintaining a solid balance sheet.
Now, I'll turn the call over to Steve Petruska for more comments on operations for the quarter.
Steve?
- EVP, COO
Thanks, Roger and good morning, everyone.
I want to echo Richard's sentiments that the fourth quarter and most of 2007 was hampered by high inventory levels for new and existing homes, tighter mortgage liquidity and weak consumer demand that contributed to the difficult operating environment.
The depth and duration of a downturn such as this requires Pulte to execute against a consistent near term strategy and to maximize sales in each of our markets and communities by finding the right combination of pace and price.
I'll take a few moments to discuss the operational components of this strategy.
Our goals surrounding land inventory centers on keeping dollars spent on land development minimal and reducing the supply of lots under control.
At the end of the fourth quarter 2007, Pulte controlled approximately 158,000 lots, down 8% sequentially from the third quarter 2007, and down 32% from the same period last year.
Going into 2008, we are continuing our focus on reducing land inventory and further restricting future land investments to current projects and take downs on finished lots where absorption, pace and margin are acceptable.
This supports our over arching goal of generating cash at each community where that is practical.
To touch on house inventory for a moment, the number of speculative homes at the end of the fourth quarter was approximately 3700 units, down 7% sequentially from our third quarter 2007 and 25% lower than last year's fourth quarter.
Our completed spec inventory sits at approximately 1300 homes, or about two finished homes per community.
This represents a small increase versus the third quarter 2007, and is essentially flat as compared with a year ago.
I continue to be pleased with the effectiveness of our field operators to keep spec inventory relatively low, particularly given the high cancellation rates facing the industry.
We stated in our previous earnings calls that we strive to preserve margin and not force volume where we see an absence of demand; however the continued deterioration of the operating environment for homebuilding and actions by our competition forced us to reduce our prices in many communities to generate some level of sales volume.
We continue to adjust our short-term tactics as needed in response to the shifting market dynamics.
What does this mean going forward?
We will do our best to keep prices at acceptable levels in stronger communities but remain responsive to the pricing environment especially for finished inventory.
Settlement revenues for the fourth quarter 2007 declined 35% from fourth quarter 2006 levels, as homes closing decreased 31% for the same period.
Average sales price was also down approximately 6%.
Fourth quarter 2007 sign ups totaled $1.2 billion as our average sales price for sign ups were 17% lower from the same period a year ago, and unit volumes decreased approximately 29% year-over-year.
Net new order dollars represent a composite of new order dollars combined with other movements of dollars and backlog related to cancellations and change orders.
Our cancellation rate was 40% for the fourth quarter, higher than the 35% rate for the fourth quarter 2006 but below the 44% rate we experienced in the third quarter of 2007.
Once again, Del Webb out performed Pulte's other brand with a cancellation rate of 34% for the fourth quarter of 2007.
Cancellation rates continue to be elevated due to the inability of buyers to sell their existing homes as well as a lower level of buyer demand in most markets, and add to that the discontinuance of many bridge mortgage programs and you get an environment that continues to be difficult on our backlog.
Let me provide commentary on what the some of our regions experienced.
Sign ups for our Northeast operations fell for the second consecutive quarter, down 28% year-over-year.
In addition to lower buyer demand, a smaller community count was present year-over-year.
Also, speaking cancellation rates in Washington D.C.
contributed to this decline.
The Southeast, which includes the Carolinas, Georgia and Tennessee, saw their signups down a relatively modest 8% compared with last years Fourth Quarter.
Cane Bay and Del Webb communities in South Carolina coastal market helped sign ups in this region.
That was offset by declines in our Atlanta and Tennessee markets.
Our Atlanta market continues to suffer from a high level of resale inventory, which led to the year-over-year decline in sign ups at 25% in that market.
Our sign ups were down 11% in our Florida operations versus the fourth quarter of 2006.
High levels of both resale and new home inventories continue to be a problem for this region, keeping downward pressure on gross margins.
Sales in Fort Myers, Sarasota and Jacksonville were down 34% and 31% respectively, as compared with the fourth quarter of 2006.
Our Tampa and Ocala markets showed increased sales of 27% and 10% respectively versus the fourth quarter of 2006.
We were once again very aggressive in our response to market conditions with our pricing to drive this volume improvement and overall the Florida region is an extremely difficult housing environment.
Our Midwest operations continued to be challenging with sign ups down 41% versus the fourth quarter of 2006.
Our Illinois market was down 60% year-over-year as some communities begin to phase out while the openings of some new communities are purposely delayed due to low overall buyer demand.
The 50% decrease in community count in our Minneapolis market was the primary driver behind its 56% decline in sign ups versus last year's Fourth Quarter.
Our Michigan and Indianapolis markets also showed weakness in sign ups.
Our central region which includes all of our Texas markets, saw sign ups decline 33% year-over-year consistent with the weakness we have seen in this area during the year.
Our Houston and San Antonio market suffered the largest decline with sign ups falling 42% and 39% respectively versus the fourth quarter of 2006.
We continue to drive down our community count in these Markets as we delay further investment until buyer sentiment improves.
Our Southwest segment, which includes New Mexico, Las Vegas and Arizona showed a 26% decrease in sign ups from the fourth quarter of 2006.
A reduced community count was again a factor in our Phoenix market which saw sign ups fall 40% year-over-year.
Our Las Vegas market also declined 30% versus the prior year quarter.
This market continues to suffer from a relatively high cancellation rate.
Conversely, an increase in selling communities for our Tucson operations as well as some relative strength in the market led to a 69% increase in sign ups in that market versus the fourth quarter of 2006.
Sign ups declined 52% year-over-year in our California operations but remained relatively flat when compared to the third quarter of 2007.
Our Central Valley and Bay Area markets in Northern California were the hardest hit with sign ups lowered by 79% and 73% respectively year-over-year.
The amount of excess inventory in new and existing homes continues to afflict this area as well as overall consumer demand.
California continues to be one of the most difficult housing environments in the country.
Our geographic diversity does provide a small benefit as our investment in California is smaller than most other national home builders who are comparable in size to Pulte.
The entire industry continues to be severely impacted by this housing downturn with no immediate relief in sight.
Pulte continues to focus on its near term goals, achieving our internal sales and closing goals, and centering on being cash flow positive in all of our communities.
We feel this is best accomplished by continuing to eliminate land acquisition and development spending, managing price and pace in all communities, and driving spec inventory to the lowest level possible.
Our field operators are becoming very adapt at employing these tactics as the challenging environment continues.
Our consistent approach will certainly position Pulte for long term success once these challenges begin to subside.
Finally, I want to echo Richard's sentiments regarding the great job our field leaders and all Pulte employees continue to do each day.
Regardless of how long this downturn persists, the organizations that have the best people on the front lines will emerge victorious.
I'm proud of the men and women who make up the Pulte organization and I continue to be inspired by their performance.
Now let me turn the call back over to Calvin.
- VP IR, Corporate Communications
Thank you, Steve.
I want to thank everyone for your time and attention on the call this morning.
We're now prepared to answer your questions.
So that everyone gets a chance, participants will be limited one question and a follow-up, after which they will have to get back into the queue.
At this time, we will open up the call to questions.
Eric?
Operator
(OPERATOR INSTRUCTIONS).
Your first question comes from the Michael Rehaut with JPMorgan.
Please proceed.
- Analyst
Hi, thanks, good morning.
- President, CEO
Good morning, Mike.
- Analyst
First question kind of surrounds the gross margins and I just want to compliment you for breaking out the benefit from prior quarters, some other builders have, some builders haven't and I think it's really helpful to benefit from prior impairments, but with that, I guess begs the question in the fourth quarter, excluding the, if I heard it right, it was 11.6, but excluding the benefit it was closer to about 8%, 8.2 I guess, and that's obviously a pretty steep drop from Q3 in some ways more than your peers.
I wanted to know if there was any, obviously, there are more incentives, tougher pricing, but given a bit steeper decline than maybe some of your peers, I was wondering if you had a sense for any Company-specific factors that might be driving that relative to the rest of the group or particularly aggressive spec reduction or if you could shed some light there?
- EVP, CFO
Yeah, Mike, this is Roger.
I think definitely our focus on the spec inventory in the back half of the year coming through the third and fourth quarter drove some of that driving it down as we had those specs to continue to focus on liquidating to generate cash, it was the main focus.
And again, what comes out of the backlog or what you end up coming through the period is some of the things you've done in the prior quarter as well as the current quarter, so definitely our focus has been on that and again as you said other people don't break it out but certainly, that's been our focus throughout quite frankly the year.
- Analyst
Okay.
Second question, just on the cash flow guidance.
I was wondering if you could for '08, if you could perhaps try and break it down a little bit more, the 650 to 850 from operations, how much of that would be from land sales versus just the selling of homes and maybe also give us a sense for over the last couple of years what your spend on land and land development has been and what you expect it to be for '08?
- EVP, CFO
Yes, Mike, this is Roger.
Unlike some other builders, we're not liquidating our land in bulk sales, so even as demonstrated during the fourth quarter of this year, it was from home sales, so even next year the projections do not anticipate any land bulk sales at all.
That is truly coming from operations and a reduction in inventory overall.
If you look at some of what we spent this year, we spent close to $1.9 billion inland acquisition and development and roughly about 23% of that was what I consider land acquisition.
Next year, we anticipate basically spending about $1.2 billion and roughly in the same area, about 22 to 23% of it is rolling lot option take downs and the balance would be land development, so overall, you look at it and we're close to about $800 million year-over-year coming down.
I think if you look at our community count as well, we look at community the count coming down next year, roughly around 15% from where we ended this year, so the combination of all of that overhead coming down next year and the cash generation coming out of inventory from not replacing all generates pretty much the guidance that we gave on the cash end for next year.
As far as cash flow for the year, we do anticipate consuming cash in the first quarter and then generating cash in the second, third and fourth quarter.
We do anticipate the tax refund that we outlined coming into the cash probably in the second quarter of 2008.
Operator
Your next question comes from the line of Ivy Zelman with Zelman & Associates.
Please proceed.
- Analyst
Good morning, guys.
- President, CEO
Good morning, Ivy.
- Analyst
You said you had 158,000 lots I think overall and just I didn't know if you gave a break down, I didn't hear the owned versus controlled but if you could help me understand the decision and maybe quantify how much of your land today, your mothballing and where the mothballing is most prevalent given the fact that you know that you have good assets, or it doesn't make sense to bring it forward, a lot of people ask about real estate taxes, carry costs, site maintenance, things that you obviously have to carry as a fixed cost so the burden of mothballing, could you walk us through the analysis and maybe give us an idea of what percent of those lots might be under your consideration for mothballing?
- EVP, CFO
Ivy, maybe I could help you with a little bit of the data points.
Of the 158,000 lots controlled, 131,400 or just about 83% are owned.
- Analyst
Okay.
- President, CEO
Ivy, on the other things as Roger kind of looks for some specifics, we've got probably about 50 communities, a little over 50 that are "mothballed".
Of those, I would tell you all but about 10, we had never even opened yet, so they could be in a raw ground state as well and obviously some of the things that you've pointed out, property taxes continued storm water management, those type of things, are a lot less expensive when the land is unimproved, and so it's obviously, it makes a heck of a lot more sense to put a community in mothball in this demand environment when we haven't put a lot of other than the acquisition of the land money into the ground.
So we continue to be focused on that.
It's a difficult decision as you go forward where you've got street improvements and those type of things and we continue in most cases as I indicated to kind of continue to plow through those because it just seems the most prudent thing in this environment of trying to generate cash to find the right price in those communities and move through them.
I think Roger has specifics maybe on the numbers.
- EVP, CFO
Yes, Ivy if you look at the number of projects we've mothballed, it's basically roughly around 29 physical projects, we count them as communities, so wound up to be roughly about 58, and of that 58, 46 of them is never been opened, so again, to Steve's point, it's not that we put a lot of value into those projects at this point and have to carry a lot of value on the balance sheet at this point as well.
- Analyst
Roger, thank you, that was very helpful.
If you can elaborate too I think a lot of us in the industry are trying to understand, the investment community if we look at your G & A overall, some companies have indicated that G & A could be I guess nothing in housing because you could just close down communities and get out of the business or exit market but if you were going to think about the fixed cost associated with your G & A would it be roughly 20, 25% or can you walk down the big components of G & A for us?
I think that would be helpful.
- EVP, CFO
Well we don't have a lot of specifics but again it's usually construction overhead, sales and administration are the big components of that and certainly, the administration, again you try to flex with levels of activity and sales as well go with levels of activity so if you got communities that's driving it and certainly what you want to do is continue to drive the pace out of those communities to be able to leverage the overhead.
I think for us as I mentioned, we targeted saving between 90-$110 million on a gross basis and we came out with about $150 million in savings overall for the first or excuse me, last two quarters of this year so I think we're in good shape going into 2008.
As I mentioned, if the community counts come down as we look forward to next year as I mentioned down about 15% and again that will affect the overall leverage that we're able to capture going forward as well in the sales and physical community cost.
- Analyst
Is there a number, Roger, though that you can't reduce because it's just part of the fixed operations that you would look at it that it's not the flex number?
- EVP, CFO
Yes.
I don't have a number specifically but yes, there's a percentage and that's really in the administrative side more than anything else.
We do allocate some corporate costs in there as well but there's a fixed cost that yes, we can't get to but as we have gone along as you say they can't get to it, we continue to focus on being able to drive that so we never say never.
We want to make sure we're doing the right things for our business from a consumer side as well as from a compliance side.
- Analyst
But that's a small number on a relative basis, the fixed component would you say that much at least?
- EVP, CFO
Relatively speaking, maybe 70% of it is more field oriented, which would, you might consider that relatively variable and 30% overall may be fixed.
- Analyst
Great.
Thanks very much.
- EVP, CFO
Thank you.
Operator
Your next question comes from the line of Susan Berliner, with Bear Stearns.
Please proceed.
- Analyst
Hi, good morning.
Roger I was wondering if you could talk about your joint ventures.
It seems like your investment in joint ventures there was a pretty big drop in the quarter so I was just looking for color and the strategy, what you're trying to do there and if you can just remind us of your largest joint ventures ?
- EVP, CFO
Yes.
Basically we only have four major U.S.
Joint ventures.
They're in Phoenix, Vegas and DC, so at the end of this quarter, fourth quarter, we had about $105 million in investments and limited recourse debt on that was about $125 million so throughout the year, certainly there's been impairments as I mentioned on that over the last couple of quarters and again we've also paid off one of them, there was debt in there that we paid off in the quarter as well, so our focus is really to continue not to do joint ventures.
As you know, we've talked about this in the past and our focus on joint ventures have never been for financing reasons.
Others have done it for financing and we only did it because of strategic value for markets that the we were into try to get access to land that particularly we didn't want to have a great deal of risk in for an entire project, so our focus there has been more just strategic and not financing and overall as the markets continue to decline, we continue not to get into any new ones or even impair these that we had on our books.
- Analyst
And just a follow-up, I guess if you can kind of go through your strategy for hoarding a massive amount of cash versus I know you didn't buy any bonds back in the open market and I was just wondering how you kind of balance that out and what you're looking for in 2008.
- EVP, CFO
Well we're watching all the signs.
Like in any board, we have to continue to watch liquidity of the business an where we're going in the future, any of our obligations, any of our liabilities, so as we manage all of these and again in a very tumultuous market, we're just at this point sitting here and watching all of the indicators to make sure we understand before we launch off in one direction or another, so I think the prudent thing is at this point, we're just in a mode where we're generating the cash and as we see some movement in the market, we'll choose one way or the other but at the present time our focus is to continue to generate cash and at this point hold on to it.
As far as the ratios of the debt and the tangible net worth, all those things, debt-to-cap continue to be in focus for us, so as we look at all of this we're taking those into consideration of major opportunities as well.
- Analyst
Great, thank you very much.
Operator
Your next question comes from the line of David Goldberg with UBS.
Please proceed.
- Analyst
Thanks, good morning.
- President, CEO
Good morning, David.
- Analyst
I was wondering if you guys could talk about the declining communities you've seen so far up to now relative to the traditional business versus Del Webb and with that as you look forward 15% decline targeted next year, what's that going to look like for the Del Webb, the active-built buyer versus the traditional buyer?
- EVP, CFO
Yes, Dave, this is Roger.
We don't have a lot of specifics on that today.
The guidance wasn't that specific on where we were going to go, but generally speaking the Del Webb are longer projects so I think intuitively you would know that more of those might be around versus some of the smaller projects, but again, we're not going to be that specific with the guidance at this point.
- Analyst
Could you maybe give us some idea what the carrying costs look like on the Del Webb projects given that they're longer and it's bigger communities versus the traditional projects?
- President, CEO
David this is Richard.
From a return standpoint, I think as we've indicated before, they tend to be at or above the traditional projects because of the combination of pace and margin that we're able to drive out of the communities vis-a-vis the traditional side, so I don't have a more specific answer for you on carrying costs, but from a return standpoint, we're pleased with those communities as pleased as you can be in this kind of environment.
- Analyst
Thanks, and then just a quick follow-up, Roger you mention the before in the Q & A that you didn't anticipate any bulk land sales moving forward, and I was wondering if that's more a question of the bids that are being offered for the land positions or if you guys are actively seeking trying to sell maybe some bulk parcels, and if not, if you're not trying to actively seek, why not, given the --
- EVP, CFO
Yeah, exactly, we're not lost on the carry back, but you know, we're looking at shareholder value as well and some may be very happy to take $0.20 on the dollar so take another, $0.20 to $0.30 hit on their book for that, so for us it's not been a focus of having to do it in necessity to generate cash.
We're looking at the value of it and yes, there's a lot of people out there today looking for the very bottom of these things and we don't feel compelled to have to do that from a cash standpoint.
The carry back is not lost on us, but you have to look at what you have to give up to do that.
There is value to those carry backs even going forward and so again, it's really a timing difference more than anything else and what the value of that is for what you have to give up, so our focus really has been to continue to focus on what we're doing and not focus on bulk sales or having to generate cash through bulk sales and we are looking at them of course.
We're looking at projects that we have that particularly we don't want to build out or might not want to buildout for sale, like any other period though we do the same thing so it just isn't a necessity for us to try and generate that cash and that's kind of been our strategy.
- Analyst
Okay, thanks.
Operator
Your next question comes from the line of Carl Reichardt with Wachovia.
Please proceed.
- Analyst
Thanks, hi, guys, actually David just asked both of my questions.
Roger, do you have a goal for '08 SG&A reduction given how well you did relative to what you mentioned to us a couple of quarters ago in '07?
- EVP, CFO
Yes, we do, and again we're not going to give guidance on that Carl at this point, a little premature, but I think you can clearly see in the last two quarters, our focus on continuing to focus the business for the size of the business going forward, we've been clearly focused on being able to drive profitability from it.
Again, we're chasing it down with the price from a profitability standpoint, but I think our focus and efforts are going to continue to be in that area and I think we're well positioned for where we are today going into 2008.
- Analyst
Okay, fair enough, thanks.
Operator
Your next question comes from the line of Buck Horne with Raymond James.
Please proceed.
- Analyst
Hi, good morning.
Can you give us or quantify for us how many of your active communities have taken at least one impairment so far and maybe how many of the inactive communities have taken at least one charge?
- President, CEO
We really haven't broken them apart into active and inactive and when you say thus far, I know Roger had given some activity for the quarter.
You mean from inception perhaps?
- Analyst
Right, right, cycle to date, at the least seen one charge.
- EVP, CFO
It's very hard to do.
Again, got communities where we've got the some closed and not necessarily on the books today, since we started this thing back in 2006.
- Analyst
Any ballpark?
Like a third maybe?
Anything?
- EVP, CFO
We're looking for some information Buck.
Perhaps that's a level of detail we could get back to you?
- Analyst
That's okay, and my other follow-up would be of the lots you still have on the books that are owned I think the 131,000, what just roughly, what percentage of those are fully developed lots?
- President, CEO
Roughly a third to 40%.
- Analyst
Okay, perfect.
Thanks, guys.
- President, CEO
Okay, Buck, thanks.
Operator
Next question comes from the line of Ken Zener with Merrill Lynch.
- Analyst
Good morning.
- President, CEO
Good morning, Ken.
- Analyst
Your cancellation rate of 40%, the way I look at it your cancellations is a percent of backlog is actually remaining fairly steady at about 25% which is below other builders and your backlog is down only 23% year-over-year which is again, better than other builders.
Could you give us thoughts or why these differences might exist and if there's any material differences within your Del Webb and traditional businesses relative to the backlog and cancellations?
- President, CEO
Ken, this is Richard.
It's a little complex but I would say the primary differences are from a customer group that you target and overall looking at their credit quality is a piece of it, as Roger mentioned our FICO scores, we have one of the highest if not the highest credit quality as measured by FICO of the builders that I've heard reported, and I think the Del Webb factor is clearly there.
Our cancellation rates in Del Webb continue to be anywhere from 6, 700 basis points in one quarter to maybe a thousand basis points in another better than our traditional business, and since that makes up 45 plus or minus percentage of our business, that's a big factor.
- Analyst
It's very good and I guess I wonder, when you are looking at that backlog which is I think a little better than other builders and if I were to look at your first quarter guidance where you're talking about the 10% gross margin and if that were to be compared against the fourth quarter you're actually expecting a better core margin or improvement in core margin if you were to recognize the only 75 basis.points from prior impairments.
Can you talk about what gives you, is it that the backlog that those cancellation rates that you've been seeing that gives you that confidence to say your actual core margin will be moving up excluding those benefits fourth quarter to first quarter?
Thank you.
- EVP, CFO
Ken, the big thing here you've got in the backlog is certainly mix and when they're delivered so that gets to be very confusing to look out at the end of the quarter but we try to estimate what we have today and what the backlog margins are and will close during the quarter.
A lot of times you've got movement and the dynamics in the market also don't give you guarantee that the backlog delivers that at that rate, so it's hard to tell you that from one quarter to the next that those deliveries, are going to be better than or worse than, so really the biggest part of that in the First Quarter is mix against the fourth quarter and I think that's really what's driving the 10 versus the 11.6 that we had in the fourth quarter.
- Analyst
I appreciate that, and then just the last one, of the 58 communities that have been mothballed, is there a big split between traditional and Del Webb?
Thank you.
- EVP, CFO
We don't have that break down in that detail at this point, so it would be hard to give that at this point.
- Analyst
Thank you.
- President, CEO
Thanks, Ken.
Operator
Your next question comes from the line of Dan Oppenheim with Banc of America.
Please proceed.
- Analyst
Thanks very much.
Was wondering if you could elaborate a bit more on Del Webb.
You talked about the returns being strong based on the pace and the sales margins.
Can you give us a sense in terms of the sales per community in that business versus the traditional business?
- President, CEO
Dan, this is Richard.
We don't have that specific number and frankly it tends to be a little misleading if you look at it on just that particular indicator because the communities are so large so frankly they need to generate typically two, three, maybe four times the volume of a traditional community to pencil so I'm not sure how relevant the particular number would be but we don't track it on that basis to have that detail.
- Analyst
I guess I'm just trying to get a better sense in terms of how the Del Webb business is going, you talked about how it's difficult for people to sell homes and given that most Del Webb buyers would be selling existing homes just trying to get anymore color you could offer in terms of the Del Webb business in terms of performance there now.
- President, CEO
Unlike the traditional buyer, the Del Webb buyer we're seeing coming in our community still wants to buy.
They don't seem near as skittish as the traditional buyer.
The biggest challenge with the Del Webb buyer is the home to sell as you mentioned.
The traditional buyer of course is very nervous and anxious about potentially falling home prices to pull the trigger and make a decision, but we're not seeing that with the Del Webb buyer.
It seems like when that buyer makes the mental decision to move into an active adult home, they're ready to go and if they have to take a little less for their home they're willing to do that.
It's just that the weakness there is more driven by house to sell but I think the mentality of buyers will differ.
- EVP, COO
Dan they're moving for a lifestyle decision versus in a lot of cases, true housing decision, so to Richard's point, there's a lot more reasons why when they make the decision they're willing to go plus they know they're in the property for several years after they by it so they aren't as concerned about maybe a short-term blip in the marketplace but I guess anecdotally what the we would tell you is in the numbers show it as well that that business continues to be steady for us, albeit still at a much lower volume than what it was two or three years obviously.
- Analyst
And then thanks just a follow-up would be in terms of the impairments when you talked about bulk land sales, you weren't interested selling for $.20 on the dollar, if you think about the impairments, how would those impairments compare with the prices you've seen in terms of some of the land sales out there.
- EVP, CFO
This is Roger.
Again it's all about negotiation at that point.
I think again, people are looking for less than what the is impaired on the books today, so just by way of example, if you impaired by 50% from original basis, people are looking for almost half of that as well, and you know, again, for different reasons, sometimes those are people are looking for rates because they may think some people are desperate to generate the cash and at any cost people go back and look at the ability to recover the tax benefit, so they probably are looking for some of the opportunity to share in that as well, so I think maybe generally directionally, it was roughly about half of what has been impaired already.
- Analyst
Okay, thanks very much.
Operator
Your next question comes from the line of Stephen East with Poly Capital.
- Analyst
Good morning, guys.
Just a couple quick questions on cash flow if I could.
If you look at your Del Webb product versus your core Pulte product, is there any differential in cash flow generation per home with that?
- EVP, CFO
This is Roger, Steven.
Again, that's somewhat a tough question, you're looking at project by project, house by house, and again, it's too hard to answer from that standpoint because you may be doing development in those areas, we actually look at projects, we look at the amount of money we're putting into projects, how much money comes off, so I don't know that that's very relevant overall and it's a level of detail that quite frankly we just don't get into.
Typically if you look at the price of the house, and what the margins are, you can assume that some are better than others and so if the price of an active adult house in Del Webb is more than others, you're going to generate more cash from a house sale, that's generally any community, but it's a level of specific and analyzing like that, it's not the something we really focus on.
- EVP, COO
Yes, and this is Steve.
I would add that our opportunities in the Del Webb communities for cash flow, positive cash flow generation really center around the timing of amenities and those type of things.
Those are incremental spends on top of land development, just normal lot development costs that you would see in the Pulte community so in some communities we can be opportunistic because we haven't put as many homeowners in there quite frankly and maybe we don't have to build the next a men it it center or finish the golf course or something like that at the time pace we thought we were going to, thus being able to generate a lot more cash in a particular community versus what we thought we were going to.
- Analyst
Yeah, and that's why I was wondering because with the sunk cost up front, when you recaptured that cost, for each home that you sold, whether you had a bigger cash flow generation versus a traditional Pulte community.
- President, CEO
Steve this is Richard.
I think a big piece of it too is what do you have to outlay to keep your business going and as Steve indicated, a significant percentage of our developed or our owned lots, excuse me, are developed, so from that standpoint, we don't have as big a committment as we would have had in other years to put the land into the actual community, so it's more harvest mode at this point.
- Analyst
Okay, and then just one other question for you.
The cash flow generation in the fourth quarter was pretty strong.
What percentage of homes sold in the quarter were spec homes starting at the beginning of the quarter?
- EVP, CFO
Again, that's, Stephen, that's pretty hard to track because sometimes a house could wind up as a sale and then cancel during the quarter and wind up as a speck and then you sell it, so that's a level of detail that's very hard to try to capture, although we've tried to do it, the fact is with cancellation rates the way they are, it just makes a number almost meaningless, so can't give you an answer on that.
- Analyst
Okay, thanks a a lot, guys.
- EVP, CFO
Thank you.
Operator
Your next question comes from the line of Nishu Sood with Deutsche Bank.
- Analyst
First question, Richard, last quarter you had mentioned the idea of price in elasticity that you were seeing in some of your communities so I just wanted to get a sense of how that has changed since then.
I would imagine a spread so what types of communities you're seeing and maybe if you could try to give us some sense of how many of your communities percentage wise you're seeing that in?
- EVP, CFO
I think the comment is generally still accurate and to your point may have even spread out as the conditions worsen through the quarter.
I wouldn't give you a good estimate on the communities.
I don't know if Steve might have more color but generally speaking what we're trying to do is be smart and our goal is to generate cash and to do our best to make money exit any given charges on a quarterly basis and in the short-term those continue to be our focus point so we're not trying to do anything crazy from a standpoint of pricing, but on the other hand we're trying to be competitive to maintain that cash flow focus, but price is still relatively in elastic in many of our communities, Steve I don't know if you have more detail.
- EVP, COO
Probably not.
- Analyst
So I guess what I'm trying to get a sense is it just a handful you're seeing it's in or is it a substantial number?
- EVP, CFO
It's a fairly substantial number.
One guy substantial is I would put it when it's somewhere in the 25-50% range.
There's a lot of communities that are there but that's just anecdotal.
I want to be careful there.
I don't have specific evidence there but it's more than a handful of communities that we're not seeing price elasticity.
- EVP, COO
And it's dynamic.
Our Operators would tell you that their competition at any given point in time is the competitors that are around them, and based on activities of those competitors, it will either drive a very in elastic demand, we can't sell it at any price because there's a lot of inventory and people are competing for very small universal buyers or if we have communities around us that sell out in a given quarter, then we may have a little bit more elasticity, we can lure that buyer into our community with a discount or an incentive.
- Analyst
And a follow-up question, on the restructuring you had announced back in May I believe, other builders have just kind of gone about the cost cutting and the reduction of staff on an incremental basis whereas you chose to package it into a more traditional restructuring type plan.
Now, in retrospect, what do you think the advantage is and disadvantages have been of that and also as a related question given how much worse things have gotten, is it time to for another one?
- EVP, CFO
Yes,, this is Roger.
First, back then it was about transparency and to talk about the relative charges that we're about to take, so again, I think in being open to transparent here and talking about what we're doing in the business and what the impact would be, we felt it was appropriate to talk about it.
As we go on, we're doing the same thing.
We're not announcing restructuring.
We continue to make changes in the organization accordingly and they're ongoing from quarter to quarter and I think you can probably see that in the numbers, roughly the $150 million net if you took the $45 million in charges we took in 2007 for the restructuring, against the 150, it's 105 and we gave guidance of 50-60 net so again there's a lot more things that have gone on as well even outside the initial restructuring we talked about in May.
- Analyst
Great that's very helpful.
Thanks a lot.
Operator
Next question comes from the line of Jay McCanless, with FTN Midwest.
Please proceed.
- Analyst
Hi, good morning.
Couple questions for you.
First one, if I look at the backlogs at the end of the Fourth Quarter, what would be the mix in there of FHA and conventional loans versus jumbo and other products?
- EVP, CFO
Jay this is Roger.
Sorry, we don't have that.
We're not tracking what's in there.
Again like I said, when you get cancellations, you could go crazy with trying so continue to track that type of thing by the mortgage product, so we don't do that.
- Analyst
Do you have a historical average from where it might be?
- EVP, CFO
No, I don't.
- Analyst
The second question I wanted to ask was on current traffic and other builders that we've heard from this week have discussed trying to hold the line on pricing some time later this year.
I just wanted to see what you say about current traffic and what you think about getting pricing power back with the consumer, thanks.
- EVP, CFO
As it pertains to current traffic, we're not kind of giving any guidance on what's going on in the First Quarter but just anecdotally, we alway see a little bit better traffic in the seasonal time periods, but relatively speaking, it's still very very difficult environment out there.
Operator
Your next question comes from the line of Alex Barron with Agency Trading Group.
- Analyst
Thanks, good morning, guys.
- President, CEO
Hi, Alex.
- Analyst
I was wondering if you guys could somehow put your cash flow which was pretty substantial this quarter into buckets for us?
Like the different components of where you guys saw the improvement?
- EVP, CFO
Well I thought I did that, Alex, and told you how the inventory reduced inland and house, so basically in the fourth quarter we had about $780 million reduction in inventory both house and land, and that's one bucket, and that certainly came through sales and then as profitability in the quarter, we had some land sales in the quarter and there's all others so I think that pretty much rounds out generating close to $980 million in the quarter.
- Analyst
Okay, but of the 780, how much of that would you say was close out of communities versus reduction in specs versus just kind of seasonal I guess variation in inventory?
- EVP, CFO
Again, Alex, we don't track that type of information from a cash flow standpoint to that level, certainly again, we've got communities, we've listed where the closing have come from across the country.
It's not necessarily whether it's closed out community or just a closing on an existing community that's going to be ongoing, so again, we're not tracking it to that level of detail but it's coming from sales of homes and closings of homes, not from bulk land sales.
- Analyst
Got it.
I wanted to ask you a question just to understand your comment on the tax rate going forward.
So, how should I think about when I get to my pre-tax line number, how should I think about what happens below that going forward?
- EVP, CFO
Yeah, I think that's a difficult thing right now is we clearly sitting here today, we don't have a very good focus on it, just again, as I mentioned because of the complexities at 109, I think as we understand the ability to look at the rolloffs and the timing differences that are in those deferred tax assets we'll have a better view of that and be able to give you guidance on that but as I mention the, you could take a tax rate or you could not, and our view was at this point to be conservative and not take one, there for giving you a greater loss.
Again, that's a complexity within it and I can't comment anymore than that because I really don't know at this point but we continue to work on that even at this given moment to better understand the complexities of 109 and how it's going to affect our deferred tax assets going forward.
- Analyst
Okay, and one last one.
I guess you mention the some land sales of $0.20 on $1 or whatever, $0.50.
Do you guys feel those kind of land sales will eventually have an impact on where book values end up going or not necessarily?
- EVP, CFO
Just to be clear, Alex, my comment was to what I was seeing in the market, not to what we did.
- Analyst
Right.
- EVP, CFO
But certainly I think clearly, at those levels you've already seen it because there have been builders out there doing some of these bulk sales and they're taking those levels of adjustments on the book.
Now again, whether they own the land in the end or whether they get it back in the end it's all different and what they paid for it is all different based on the structures they put together for those bulk land sales, but again, yes, it could affect it going forward and the more you write-off certainly the more the margin might be in the future and again, play the profitability but overall, if you're selling it at $0.20 and buying it back at $0.50, again, that's a different value I think for the shareholder and again, those are all going to play out in the market as we go forward so it's very very hard to tell you where it's going to go but I think clearly you've seen it in the sales that have happened in the markets.
- Analyst
Thanks a lot, Roger.
- EVP, CFO
Okay, Alex.
Operator
Ladies and gentlemen, this concludes our Q & A session.
I'd like to turn the call over to Mr.
Calvin Boyd for closing remarks.
- VP IR, Corporate Communications
Thanks, everyone for your participation on the call today.
If you have any follow-up questions, please feel free to give me a call.
Thank you and have a great day.
Operator
Thank you for your participation in today's conference.
This concludes our presentation.
You may now disconnect.
Have a good day.