普爾特房屋 (PHM) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2008 Pulte Homes Incorporated earnings conference call.

My name is Heather, and I will be your coordinator for today.

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

We'll be facilitating a Question and Answer Session towards the end of today's conference.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr.

Calvin Boyd, Vice President Investor Relations.

Please proceed, sir.

Thank you, Heather.

Good morning and thank you for joining us to discuss Pulte Homes financial results for the three and nine months ended September 30, 2008.

I am Calvin Boyd, Vice President of invest or and Corporate Communications.

You have all had a chance to review the press release detailing third quarter 2008 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 who have access to the internet, a slide presentation, available at www.pulteinc.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 for the prior conference calls, I want to alert everyone listening on the call and over the Internet certain statements and comments made during the course of this call must be considered forward-looking statements as defined by the Securities Litigation Reform Act of 1995.

Pulte Homes believes such statements are based on reasonable assumptions but there are no assurances actual outcomes will not be materially different from those discussed today.

All forward-looking statements are based on information available to the Company on the date of this call and the Company does not undertake any obligation to you be likely update or revise forward-looking statements as a result of new information in the future.

Participants in today's calls refer to Pulte's annual report on form 10-K for the year ended December 31, 2007, and last night's press release for detailed list of the risks and uncertainties associated with the business.

As always, at the end of our prepared comments we'll have time for Q&A.

We'll wait until then opening the queue for questions.

I will turn the call over to Richard Dugas for opening comments.

Thank you, Calvin, and good morning, everyone.

After experiencing an already very difficult operating environment for the first half of 2008, the market conditions for housing further deteriorated in the third quarter.

Home prices continued to slide, mortgage lending standards tightened further, and the demand for housing continued to fall under these pressures.

Months supply of unsold new and existing homes remained at historically high levels and the increase in foreclosures made this over supply problem worse.

In addition to those housing specific concerns, our country is reacting to an unprecedented combination of economic turmoil, uncertainty in the credit and financial markets and worldwide concerns of a financial collapse.

The rescue plan signed into law by the President a few weeks ago appears to only just now be starting to thaw the credit markets and help ease the panic of investors.

These broader conditions wreak havoc on the homebuilding industry in the third quarter and have into October as well.

Potential home buyers reacting to industry specific factors and these broader economic concerns are likely to stay on the sidelines until the picture becomes clearer.

The challenge to achieve our corporate goals is heightened in such a difficult operating environment, but Pulte Homes has been diligent and unwaivering in its pursuit of near term strategy namely cash flow generation, operating with a lean over head structure in response to the weak demand environment, and managing our house and land inventory.

We generated cash during the third quarter and ended the period with $1.2 billion of cash on hand.

The ability to generate cash in such a challenging environment becomes increasingly difficult for any builder, but we have been able to generate cash this entire year and remain focused on delivering more cash by year end as you can see from our press release.

We continue to drive our overhead costs lower on a year-over-year basis as well.

For the third quarter of 2008, our ongoing efforts to align our cost structure with low level of demand for homes resulted in a $45 million overhead reduction versus last year's third quarter.

From the operations perspective.

the overall sales environment was much weaker than forecasted, negatively impacting our net new orders during the quarter.

Steve will provide more comments on what we experienced during his prepared remarks.

We have comment before that new home pricing fell more aggressively earlier in the downturn and that existing home pricing need to do catch up.

That is now happening.

The case shielder study released September 30th, shows pricing for existing homes has fallen more than 16% from year ago levels.

We still feel this trend will likely continue and as stated is necessary to eventually reach a bottom in the housing market.

On the congressional front the rescue bill passed by the President and Congress will hopefully provide some stability to the financial markets and liquidity to the mortgage market.

However, we know it is not stimulative for housing demand.

Looking forward, it appears that a bottom in the housing market may not come for some sometime.

There are two things that would change this.

The first is the passage of time.

Under building long-term demand to work off both excess unsold inventory and help offset foreclosures entering the market.

This will take time, and nobody really knows how long.

The second would come in the form of a government stimulus directly aimed at housing specifically a one-time tax credit of $20,000 or more for all homes not just first time buyers or not just new home buyers.

This tax credit should contain new repayment provision and should be in effect for a relatively short period to heighten buyer urgency.

The tax credit should be combined with a temporary mortgage rate buydown of 150 to 250 basis points.

This exact combination strategy was employed during the severe housing correction in 1975 and it worked.

While we are and will continue to aggressively lobby Congress for this stimulus, we will manage the operations of the Company based on the former.

In other words, we are not relying on government assistance.

I continue to believe that Pulte is doing the right things as we navigated through this downturn.

We plan to be in a position to capitalize on opportunities when they eventually emerge.

A big part of our confidence comes from our transparent, well-positioned balance sheet.

In our press release issued last night, we indicated a cash goal of $1.6 billion to $1.8 billion by the end of 2008.

We also have a very favorable debt structure with virtually no debt maturities until 2011.

Our Pulte management team continues to balance our tactics to ensure both short-term goals and long-term views are properly aligned.

Although we do not expect the housing market to turn around any time in the near future, it will rebound at some point.

The projections for household formations reported in joint center for housing studies point to a healthier market over the long haul.

We continue to manage this business, so we are position to do capitalize on opportunities when signs of stabilization become visible.

Lastly, a message from me to our employees.

Thank you.

Thanks for all you continue to do for our Company as this downturn persists.

By travels of late provide me confidence as I continue to be impressed with your attitude and performance.

Thanks again for all you do.

Now let me turn the call over to Roger Cregg.

Roger?

Thank you and good morning, good morning, everyone.

Our third quarter home building net new unit order rate decreased approximately 34% from the third quarter last year and approximately 16% less communities versus the same quarter last year and down approximately 12% in communities from the year end 2007.

Revenues from home settlements for home-building operations decreased approximately 37% from the prior year quarter to approximately $1.5 billion.

Lower revenues reflected lower unit closings that were below prior year by approximately 28%.

The average sales price decreased approximately 13% versus the prior year quarter to an average of $281,000.

Third quarter land sales generated approximately $13 million in total revenues, which is a decrease of approximately $18 million versus the previous year's quarter.

Home-building gross profits from home settlements including home-building interest expense for the quarter was a loss of approximately $90 million versus a loss of $293 million in the prior year quarter.

Home-building gross margins from hotel settlements as a percentage of revenues was a negative 6% compared with a negative 12.2% in the third quarter of 2007.

The change in margin conversion versus the prior year quarter is attributed to lower community valuation adjustments in the current quarter offset by reduced closing volumes and increased selling incentives.

Adjusting the current quarter for land and community valuation charges of $250 million the gross margins from hotel settlements as a percent of revenues was at a run rate of approximately 10.6% for the quarter.

The current quarter benefited from the impact of prior quarters land and community valuation adjustments by approximately 783 basis points or approximately $118 million.

Home-building interest expense decreased during the quarter to approximately $53 million versus approximately $98 million in the prior year.

Included in the interest expense of $53 million is an additional $19 million of expense related to land and community valuation adjustments taken in the current quarter.

Also included in the gross margin for the quarter was a charge related to land and community valuation adjustments in the amount of $231 million.

For the third quarter, we tested approximately 120 communities for potential impairment and valuation adjustments.

We recorded valuation adjustments approximately 96 communities for the quarter, of which approximately 50 communities or 52% have been previously impaired.

Of the $231 million of land and community valuation adjustments approximately 45% or $104 million were related to Del Webb communities.

The total gross loss from land sales was approximately $15 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 $16 million, which is included in the land cost of sales.

SG&A expenses as a percent of home sales for the quarter was approximately 12.7% or $192 million, a decrease of approximately $45 million or approximately 19% versus the prior year quarter.

The current quarter reflected the reduced level of expenditures in all categories associated with the decline in volume and also included approximately $3 million in severance related to over head reductions as we continue to adjust our expenses to the lower volume experienced throughout the quarter.

Additionally, the current quarter also included an insurance reserve related charge of approximately $28 million associated with a development of general liability product claims based on an actuarial basis.

In the other income and expense category for the quarter, the expense of approximately $5 million includes approximately $2 million in customer deposit for fitted sures in addition to a pickup of approximately $1 million from the recovery of previously expensed land deposits.

The home-building pre-tax loss for the third quarter of approximately $302 million resulted in a pretax margin of approximately a negative 19.8% on total home-building revenues.

Excluding the charged related to the valuation adjustments in land inventory and investments, land held for sale, and severance and related charges home-building pretax margins converted at approximately negative 2.1% from operations or approximately a $32 million loss for the current quarter.

Backlog for the third quarter from home-building operations was 5,885 homes valued at at approximately $1.7 billion.

The pre-tax income from Pulte's financial services operations for the third quarter was approximately $10 million or a decrease compared with the previous year's quarter of approximately $3 million.

We continue to experience a favorable product mix shift into the third quarter as funded agency originations were approximately 99% of loans funded from the warehouse line versus 87% for the same period last year.

Non-agency funded originations fell from 13% of loans funded from the warehouse line last year to approximately 1% this quarter.

Additionally, within the funded agency originations, FHA loans continued to increase as they were approximately 30% of loans funded from the warehouse line in the third quarter versus approximately 24% in the second quarter of 2008.

The level of adjustable rate mortgage products originated during the third quarter of 2008 decreased from approximately 7% of the origination dollars funded from our warehouse line in the third quarter of the previous year to approximately 3% this quarter.

Pulte mortgages capture rate for the current quarter was approximately 93%.

Mortgage origination dollars decreased in the quarter approximately $549 million or 39% when compared to the same period last year.

The decrease is related to the volume decrease in the home builder closing activity for the quarter.

The average FICO scores of loans closed for the period was approximately 736 remaining relatively flat with the second quarter of 2008 and down slightly from 745 for the same period last year.

In the other nonoperating category, pre-tax loss for the third quarter of approximately $3 million includes mainly corporate expenses of approximately $8 million offset by $6 million in net interest income related to the invested cash balance during the quarter.

For the third quarter the Company's pre-tax loss was approximately $295 million.

Excluding the charges related to the valuation adjustments in land inventory and investments, land held for sale and severance related charged, represented a pre-tax loss from operations of approximately $28 million for the Company in the current quarter.

The Company's income tax benefit for the quarter was approximately $14 million compared with a benefit of $306 million in the prior year period.

In accordance with Statement of Financial Accounting Standards, number 109, accounting for income taxes, we increased our net deferred tax assets from $170 million at June 30th to $248 million at September 30th, which represents the estimated income tax refund related to the 2008 tax year.

The $248 million balance at September 30th is comprised of net deferred tax assets of $1.28 billion offset by valuation allowances of $1.03 billion.

The net loss for the third quarter was approximately $280 million or a loss of $1.11 per share as compared to a net loss of approximately $788 million or a loss of $3.12 per share for the same period last year.

The number of shares used in the EPS calculation was approximately 253.6 million shares for the quarter.

Moving over to the balance sheet for the third quarter, we ended with a cash balance of just under $1.2 billion, increasing approximately $186 million from the second quarter of this year.

House and land inventory ended the quarter at approximately $5.2 billion.

Excluding the inventory valuation adjustments for the third quarter, total inventory decreased approximately $246 million for the second quarter.

House inventory excluding land for the quarter decreased approximately $20 million.

Land inventory during the third quarter excluding valuation adjustments decreased approximately $226 million.

The major changes were from land relief through home settlements of approximately $396 million, offset by investments in rolling lot option takedowns of approximately $13 million, and land development spending of approximately $163 million for the quarter.

As I mentioned a few moments ago on the P&L, and to repeat it again on the deferred taxes, in accordance with statement of FAS 109 accounting for income taxes we increased our net deferred income tax assets from $170 million at June 30th to $248 million at September 30th, which represents the estimated income tax refund related to the 2008 tax year.

The $248 million balance at September 30th is comprised again of net deferred tax assets of $1.28 billion offset by valuation allowances of $1.03 billion.

Highlighting the major components of the net change in cash for the third quarter, total inventory excluding valuation adjustments decreased contributing approximately $246 million through the reduction of house and land inventory.

In addition, in the third quarter we decreased our payables by approximately $88 million offset by all other categories for a net in flow of approximately $28 million.

With approximately $1.2 billion in cash to end the third quarter, we had no outstanding balance drawn on revolving credit facility at the end of the quarter.

The Company's gross debt to total capitalization ratio was approximately 49.9% and on a net basis 38.5% at September 30th.

Interest incurred amounted to approximately $54 million in the third quarter compared to $62 million for the same period last year.

Pulte Homes shareholder equity for the third quarter was approximately $3.2 billion.

We repurchased no shares during the quarter and the Company still has approximately $102 million remaining on our current authorization.

On our financial covenants for the unsecured revolving credit facility for the third quarter, the required debt to total capitalization ratio was not to exceed 47.5%, and at September 30th the ratio adds defined in the credit facility was 46.9% and the tangible net worth cushion as defined in the credit facility was approximately $89 million.

We are in full compliance under our revolving credit agreement at September 30th.

We are currently in preliminary discussions with our bank syndicate to amend our current credit agreement for adjustments in the covenant levels.

We expect to have the amendment completed in the fourth quarter.

Given the highly volatile and difficult credit and financial market conditions experienced at the end of the third and into the fourth quarter, along with the impact on the economy and housing industry from slowdowns in consumer spending, business investment and general labor market, we are offering no earnings guidance for the fourth quarter.

Our visibility is a major factor in this uncertain financial and economic climate.

With our continued internal priorities and focus on selling homes, cash management, and house and land inventory, we are targeting ending the year of 2008 with an ending cash balance in the range of approximately $1.6 billion to $1.8 billion, reflecting the $313 million senior note tender and repurchase completed during the second quarter.

Additionally, with this level of cash on hand, we anticipate no outstanding balance on revolving credit facility at year end.

I will now turn the call over to Steve Petruska for more specific comments on third quarter operations.

Steve?

Thanks, Roger, and good morning, everyone.

To echo Richard's comments earlier, the housing market did become more challenging during the third quarter of 2008.

Although the absolute number of new unsold homes continues to fall, the month supply of new homes remains at historically high levels with lending standards tightening in the mortgage market and a continued slide in home prices, buyer demand for new homes continues to be under enormous pressure.

The difficulty of potential customers to sell their existing homes also continues to negatively impact new home sales volume.

In short it is a tough market that just got more difficult with the current uncertainties.

It is now more important than ever that we diligently follow our near term strategy, cash generation, maintaining lower cost structure, and managing inventory levels continues to be our focus.

Richard and Roger have already covered our progress as it relates to our cash goals, so let me comment on our cost structure initiatives in inventory management strategies.

First, our overhead savings for the quarter shows our ongoing efforts to adjust our operating structure given the pervasively challenged sales environment for housing.

If things get worse, there are additional steps we can take.

I am confident in our ability to get more efficient.

Second, from the house cost perspective we continue to analyze each phase of construction process to identify opportunities to improve operational efficiencies.

Our supply chain strategies reach beyond the vendors and suppliers and searches for ways to reduce costs directly with manufacturers.

We look for better, more efficient ways to deliver materials to the construction site, partnering with the most efficient providers of these building materials and reducing cycle time it takes to build each home.

These and other efforts have been ongoing for some time, and the pay off will become more visible once home prices begin to stabilize.

Third, limiting the negative impact of fluctuating commodity prices has been a challenge.

Commodity prices peaked in July but declined for the balance of the third quarter.

In many cases, labor and materials come as bundled packages from our suppliers.

We performed detailed analysis to unbundle those costs and now can separated true commodity cost increases from other components of house costs.

We work with our suppliers an ongoing basis to ensure increases in material prices do not impact other house cost components and that we receive the benefit of any declines in commodity prices as well.

Moving into inventory management, we continue to focus on keeping land acquisition and development spending low and reducing our lot supply through closings.

Pulte reduced its lots under control by 5% from the prior quarter and 25% on a year-over-year basis to 128,000 lots at the end of the third quarter.

Of these total lots 110,000 are owned, and 18,000 are controlled with options.

Our speculative home inventory now stands at approximately 3800 units, 7% lower than the prior year quarter.

We have 1,300 finished specked homes which equates to about two finished homes per community.

The rise and cancelation rate for the quarter had an impact on this metric.

Although we would like to see it drop further we understand most buyers are not making purchases until they have sold their existing homes.

Therefore, in certain communities in some of our markets, we continue to carry a limited amount of completed inventory to maintain sales paces.

Home prices continued to slide throughout the third quarter of 2008 as concerns about the overall economy put additional downward pressure on home sales.

The pricing environment remains very dynamic, and our sales leadership teams continue to be responsive as needed with price decreases in certain markets.

Third quarter 2008 sign-ups were just over 3,000 units down 34% year-over-year.

Sign-ups were lower in each operating area ranging from a 12% decline in the Great Lakes markets to a 46% drop in the northern California operations.

As all of are you aware, foreclosures continue to be on the rise in most major markets and even with lower unsold new home inventory there is not enough housing demand to stabilize sales paces.

Our current cancelation rate was 37% for the third quarter, higher than the 29% rate for the second quarter of 2008 and lower than the 44% rate for the prior year third quarter.

The cancelation rate for our Del Webb brand was 32%.

In conclusion, the recent turmoil of the financial markets caused more volatility in the overall housing industry putting downward pressure on customer traffic and sales volumes of new homes.

Given this volatility we're keeping focus on selling and closing homes, generating cash and managing our inventory.

That includes maintaining limited land acquisition and development spending, managing house inventory levels and achieving the best possible balance of price and pace in each of our communities.

We also continue to pursue our cost savings initiatives including managing our overhead costs.

We feel these are the right steps to take and will be the foundation which allows Pulte to emerge as a leading industry player for the long-term.

Now let me turn the call back over to Calvin.

Calvin?

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 to one question and a follow-up after which they will have to get back into the queue.

At this time, we'll open up the call to questions.

Heather?

Thank you, sir.

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Joel Locker with FTN securities.

Please proceed.

Hi, guys, just wanted to know about the SG&A I saw increased as a percentage of revenues from the second quarter, and just wanted to see if you could shed some light on that?

Yeah, Joel, this is Roger.

Basically with declining we had declining revenues of course, so on a percentage basis you know the percentage actually went up.

When you look at some of the things we've been doing throughout the year and even against last year, we're actually down about $45 million from last year.

As I mentioned in my prepared comments that during the third quarter we also took an adjustment in one of our insurance reserves by about $28 million for product claims, so some of those that we've been talking about on the 28 million specifically wasn't something that quite frankly we had forecasted but that happens from quarter to quarter.

We do that on an actuarial basis, so again from the controllable costs and the SG&A has been down against last year by about $45 million.

All right.

Thanks a lot.

Your next question comes from the line of Ivy Zelman with Zelman and associates.

Please proceed.

Good morning, guys, it is actually Dennis.

Roger, I was hoping maybe you could with regards to the line of credit, just give us a sense from your side of the table why you're confident in getting the amendment and just kind of the thought process as you're talking with some of the lenders because obviously the perception from outside of the -- from the outside world would be in this environment no one is willing to extend credit under any circumstances, particularly if you're someone tied to the housing industry, so just kind of alleviate maybe concerns that might be out there regarding your ability to get a waiver?

Sure.

Thanks.

Dennis.

I think when you look at the players in the industry, I don't think the comment is true among all players.

I think certainly there are a lot of private builders as this industry is very fragmented as you well know.

I think a lot of the banks are looking at the companies and the quality of the companies in the industry, so I think Pulte has been and continues to be one of the premier companies in the industry.

I think also that we've continued to deliver on what we've been talking about for the last couple of years in our focus on the strategy of how we're running our business, and again I don't know that everybody else is there.

I think certainly the banks are under stress, and the industry as well, so there is no doubt about that.

I think the size of the capacities are coming down.

I think the costs of the money is going up, and I think that's going to be indicative of the industry going forward for some period of time, so I think again for us to be continuing to focus on delivering what we said we would do and just our overall relationships with the banks, you know, are very good.

Okay.

And then a follow-up question would just have to do with your land supply.

Could you maybe just run through your most important markets where you feel like you're maybe light right now and then kind of in that same vein from a development standpoint what do you think would be kind of the maintenance level of spend that you would have to put out there in 2009 if the environment kind of holds at this level?

Dennis, this is Richard.

I will give you an overview and flip it to Roger and Steve for more specifics.

In general we're understand looking to add to our land position anywhere right now because deals that make financial sense are few and far between if existing at all.

While we continue to look in many markets, the refrain we keep getting back from our key operators is that we just can't find things that make sense in today's environment.

Having said that, there are select markets that we would like to put investment that we're relatively under invested.

I would highlight the Carolinas as an example where we've run off a good bit of our projects that have still been profitable for us.

We have a market in the Midwest such as Minnesota that's a good housing market long-term where we don't have a lot of lots left, and then I would highlight Texas as well.

Pulte is historically been relatively under invested in Texas, and we would like to put a few more dollars there, so those would be kind of overview comment, but I want to stress we're not going to buy dirt just to impair it the following quarter in this kind of environment, so with that I don't know if Roger or Steve want to add anything.

This is Roger.

We talked about this year coming into this year roughly investing in the business close to $1.2 billion.

Weed broken that out by by $300 million in land acquisition, a lot of those in rolling lot option takedowns and about $900 million in investment from land development, and some of the soft costs.

Definitely we're going to be short of that investment this year, so next year we're really putting our plans together at this point to take a look at really what the environment is and of course that's very difficult, but on the order of magnitude, I wouldn't see it exceeding what we had thought we would do this year potentially what we even wind up doing, but nonetheless there still as Richard mentioned a number of markets that we are still focused on and if the land is available at the price to give us a return on that, that will be something we continue to push forward with.

Dennis, just one final thought just to add my $0.02.

The reality is that we're selling houses today probably below the replacement costs, and therefore even in the case of foreclosures, the badges haven't gotten realistic yet, and they're not selling the land at prices that would support profitable operations at today's selling prices, and until that changes, even in places where we're running a little light on land and Richard highlighted some of those, it is just difficult to make an investment that makes sense, and so we won't do that.

Okay.

Thanks again, guys, and good luck.

Thank you.

Your next question comes from the line of Megan McGrath with Barclay's Capital.

Please proceed.

Thanks.

Richard, last quarter and throughout the third quarter you talked about doing some promotions for the end of down payment assistance and for the tax credit, so I am curious did you not really get any traction at all with those, no buyers in the door or was that -- was any traction you got offset by other buyers just leaving the market?

Megan, specifically on the tax credit the $7,500 credit passed at the end of July, I think that's what you're referring to.

Yep.

That was a nonstarter for us and the rest of the industry through the quarter.

Unfortunately the repayment provision that came with that was resoundingly rejected by buyers.

They viewed it exactly for what it was, an interest free loan from the government but not a true inducement to buy.

Down payment assistance, there was certainly some activity, particularly earlier in the quarter related to people trying to get in under that, but the offset was just the incredible turmoil, particularly toward the end of the quarter as we got into mid-and late September the financial chaos that ensued in the markets just froze people from buying completely, and we kept hearing the refrain, you know, boy, I would like to buy at these prices, but I just don't feel like my money is safe, so I think it is a tale of two stories, the tax credit was not effective, and the DPA going away provided some lift for people trying to get in but that was offset by the incredible uncertainty.

Thanks.

Just as a follow-up you mentioned a little in your remarks a little bit around San Francisco.

Any other areas out performing or under performing the market that are doing anything different?

Our sales, Megan, were down across the board, and that I think was in some of the information we released out yesterday, but the reality is that we continue to do pretty well in the Carolinas relative to our overall business, and pretty much every place else is down year-over-year in that 12% to like we talked about in northern California 46% range.

Okay.

Great.

Thanks very much.

Thank you.

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

Good morning.

Good morning.

Good morning, Nishu.

The first thing I wanted to ask about is cash flow guidance.

You lowered it by about 100 million.

You were just mentioning you are probably going to come in light other the land development expenditures side so wanted to drill down into the incremental drivers of that were, has it been less cash coming in the door or some incremental expenses?

This is Roger.

I think clearly it is the sales activity and the closing activity.

By now pretty much anything we've spent on land development is pretty well committed.

We're into almost November now, so the ability to come back and change those and pull those back is almost nonexistent end.

Most of it I would say is pretty much all was driven really from our view hereof what potentially the closings could be given the economic conditions, and again I put a range in there.

I could easily see it to the upper side and easily see it to the downside, just depends on what happens, if we have a backlog coming through, we have a certain amount of home that is we typically sell and close in a quarter, and all of those things could be influenced which will really just influence the cash in-flow, and pretty much all the outflow is programmed at this point.

This is Richard.

I would also add we had that guidance out there since the beginning of the year, so as we've seen closings fall all year we've been managing that development expenditure as well, so it has been a tale of two throttles there, so on a relative basis we believe it is still a good cash performance for the year given the environment.

Got it.

Got it.

Just a follow-up question I wanted to ask on your land that you own.

Obviously as the downturn has progressed here, you have been cutting discretionary land spend, so let's say projects that probably wouldn't come to market for another year or two.

You probably have been pushing through the development on projects that you can deliver in the short-term.

Does that leave you with call it a bar bell shaped land supply where you've got a lot that's either finished or close to finished and a lot that's raw, and so you have those two big buckets, and if so what does that imply for your operations and land development expenditures next year?

This is Roger again.

I think, yes, all of those things are things we certainly push on as we look at what the level of activity is and as the level of activity falls off of course you don't need to develop as many lots.

We have a number of lots in front of us and developed in certain communities that some are a little bit more, some are a little bit less, and it depends on the activity in those markets and as they've ebbed and flowed we've had to respond to those and pretty much on a short-term basis, but, yeah, eventually if this continues and you go out a year, year to year to year with three years into this, trying to slow it down as the overall demand declined, certainly going to create pressure for the future.

Now, we continue to look out two and three years in each one of our areas and each one of our markets to take a look at potentially what that could mean.

The hardest thing to do is actually today pinpoint what that demand is so again we can assume it is going to be higher level or lower level in each one of those markets and will mean a different thing on overall cash development into those communities, so all of those things we do balance, but we do keep have to work through the short-term get to the long-term as I say, but we do have the long-term in focus as we look out over the number of years to make sure we have a healthy business.

Nishu, This is Steve.

Just to add to that, a lot of our lots are controlled in large master plan communities, so much of the first mile costs, the backbone infrastructure, those type of things have been done, and we're in pod development in a lot of those communities, and as this thing has gone on for the last couple of years, land developers both on our side of the fence and then certainly the trade base has gotten much more efficient at delivering much smaller pods of lots as we need them, and we have a lot of opportunity to develop lots relatively quickly especially in our sun belt communities where you can develop all year-round, so the diminishing demand doesn't create quite the bar bell you're talking about and our ability to put lots back on the ground much quicker than what we were two or three years ago is also in our favor there if and when the time comes that we need some lots.

Got it, that's very helpful.

One final quick question.

Where are your cash balances invested?

Well, we have over 25 banks in our consortium, so we have them spread out through all of our relationship banks quite frankly, and our bony money is invested in money market funds and coordinated through our banking relationships, and again we continue to focus on where that money is with the expected ability to maintain the value and the liquidity of the cash in itself, so our overall efforts there are daily communications with the banks and also with the various fund managers to make sure that our investments are as safe as possible.

Great.

Thanks a lot.

Your next question comes from the line of Michael Rehaut with J.P.

Morgan.

Please proceed.

Thanks.

Good morning, everyone.

Good morning, Mike.

First question just to get back to the land spend and cash flow for a second.

You mentioned at the beginning of the year you thought you would do 1.2 billion in land spend and now it is probably less than that, but bigger driver to the drop in guidance due to less than expected closings.

How much could that come down in '09 and if you look at that land spend, can you give us an idea roughly on a percentage basis what of that relates to Del Webb which are communities that I assume obviously are a little bit longer term and still important to continue to build out?

Yeah, Mike, this is Roger.

I think number one when we talk this year roughly the $900 million in land investment, quite frankly may be $250 million of that is what we consider soft costs, taxes, maintenance, that type of thing, HOA fees we have to maintain because we haven't turned it over to the community yet and the homeowners, so there is an amount we can pull back on that, but again you have to continue to look at where it is, so we talk about developed land.

It may not be all in the right place at the right time where the demand is, so we do have ebb and flow with that.

As far as land itself and development, yes, there is a portion still roughly 40% of our business is active at Del Webb, part of that, so again when you look at the ability to move that cash around, the timing you put in, amenity centers and that type of thing are all the things we continue to look at, phases of the projects, so again I don't have a specific number, but generally it has been in that 40% range overall.

Now again have you to step back and look at land acquisition and majority of the Del Webb we quite frankly own, and again if we're looking at the market today for investment on the traditional side of the business, we would be looking at developed lots that exist in markets today.

Okay.

I appreciated the detail, Roger.

Taking it a step forward and I understand you're really not talking about guidance for '09, but it is pretty hard for me to get to a scenario given the backlog down the way it is, I believe 58% on a dollar basis that you guys wouldn't have less cash flow generation, lower cash flow generation in '09 versus '08 particularly given some of the as you said taxes and maintenance and the active adult communities.

Is that fair to look at it like that?

Yeah, it is Mike, and I think we've been talking about this a number of quarter says now that 2009 will not look like 2008 from a cash generation in the industry in general because again the demand continues to fall, and that's of course the driver of cash in-flow, and then our responsibility is to make sure we're looking at the cash outflow, so we definitely try and match that up.

There is no doubt about that.

There is also no doubt about the fact that 2009 will be less cash generation, so what we do this year and how we manage the business and what we do next year for the cash outflow and investment will be critical to the levels of cash that we maintain, but I do still again looking at potentially next year think that even at a level where we are this year could wind up with slight positive cash flow, and again that would be a goal, but we would still look to invest in again land development and potentially some takedowns on the land side, but again we have to come through the fourth quarter to look at what demand is.

If the world it still rocked by volatility and uncertainty and we're looking at a global recession, there is going to be a big influence on the United States that we have to take into consideration as well, and everybody has a Crystal ball, but it is for us to continue to manage on a quarter by quarter basis.

All right.

Really appreciate that detail, Roger.

One last question if I could.

The down payment assistance, what was it as a percent of homes closed this quarter and looking forward into the fourth quarter, and obviously the absorption rates continue to be challenged, and DPA finally being eliminated, how do you feel where you are in terms of your pricing and obviously everyone has been hearing about pricing coming down more with DPA, you know, are you guys particularly just hold absorptions at a certain level, you know, readying yourself to take price down again?

Mike, this is Roger.

I will take the first part.

The DPA of our closings in the third quarter were roughly about 12%, and in the second quarter they were roughly about 10%, and I will flip it over to Steve and maybe talk a little about the pricing environment.

Yeah.

Mike, the pricing environment is very, very dynamic.

I will also tell you this.

It is very inelastic.

We've found that early on we were able to and I say early on, a year ago, we were able to generate significant improvement in sales paces where we made some price adjustments.

At this point because of the overall lack of demand, we're not seeing much hit for anything that we do, and quite frankly what we've tried to do is stay very close to what's going on in the foreclosure market.

We know if we can -- with entry level communities priced close to that, we have a significant advantage because there is usually a lot of hair on a foreclosed home that the buyer has to put cash into and those type of things that they don't have to in a new home, so we balance those two things out, but on an over all basis, yeah, prices continue to decline.

They're just not declining at the rate that we saw, and I would suspect that that would continue because we just don't get any punch out of it, and it comes to a pint for our operators where they look at it and say I am going to sell one a quarter in this community one way or the other, I might as well sell it at a margin that makes sense and keep squeezing down the costs versus just lowering the sales price and getting nothing for it.

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

Please proceed.

Thanks.

Good morning, guys.

Good morning, David.

Questions about the Del Webb business and how much you think the decline in the stock market and individual's wealth is going to impact what I think is probably a pretty discretionary purchase by most active adult buyer science.

This is Richard.

Del Webb buyer continues to be plagued with the inability to sell their existing home.

The difference we continue to see between that buyer and the traditional buyer is that once they make up their mind to move and change their lifestyle, they're less impacted by the pricing environment that we see.

Having said that, it is -- we've said all along they're just affected to a slightly lesser degree.

That's why we continue to see a little better out performance in our business in the Del Webb side than we do in the traditional side, but the fact is 80% of homes sold in this country are resale, and almost every one of them are Del Webb buyers needs to sell an existing home to make their additional purchase or at least they choose to.

Therefore they're impacted, but I think the best way to characterize it is it is a little better than the Pulte business but still not healthy.

I think the big thing there, David, that Richard hit on, is most of their net worth is in their home that they own, and that has already been impact.

Yeah, they have equities they may hold or they may have debt instruments they hold for longer term investments, but that's not primary what they're using to buy their home.

They're trading one for the other.

We've been experiencing that as we've gone along.

Our quarterly statistics, we've been averaging right about 35% of our closings being Del Webb branded closings, not not all active adult but Del Webb brands, and this quarter it was right around the same number, about 34%, so I would tell you that certainly what's going on in the economic world is having an impact on Del Webb buyers just like it is everybody else, but you got to remember the equity in their home is what they've been using to buy the home, and they've been experiencing that for several quarters.

It is not just new this quarter.

I guess the question I would ask you, Steve, maybe kind of as a follow-up is how do the pricing -- if you have any typical or on average for people that are trading into a Del Webb home or active adult home at all, do you have any idea what the pricing looks likes versus what they're selling, i.e.

they're going to cash out equity in the existing home?

I have a feeling in the last three or four weeks the markets are down so significantly if you were a retiree on a fixed income budget and lost a certain percent of your capital, you have to find a way to cash out a little bit maybe from the equity in your home.

Is there a chance to do more movedown in that case?

That's exactly what we've been focusing on is a lot of our product mix has been shifted towards smaller homes, still offering the lifestyle because 70% of the buy in a Del Webb community is first in the lifestyle, and so to your point we can offer them some alternatives for some of this loss in quote unquote purchasing power or long-term income power, but I can't really give you kind of a dollar for dollar on the equity loss side because even in Arizona our folks come from several different states and the conditions are different in each one of those, but suffice is to say they've lost equity in their home.

They've lost buying power in the Del Webb community.

We're trying to match that as much as we can with product mix shifts down to lower price products, but, yeah, they're still spooked by what's going on with the rest of their investments, and I think what we're seeing is with that buyer in particular is they're putting off the decision to buy not necessarily eliminating the decision to buy, and we're just going to have to continue to fight through that.

Okay.

Great.

Thanks so much.

Thank you.

Your next question comes from the line of Josh Levin with Citi.

Good morning.

Good morning, Josh.

Richard, in the past you said you can't reduce expenses too much more without I think your phrase was cutting into the cultural arteries of the company.

I guess given the economic slowdown and just the turmoil, is that still the case or do you think there really are more cuts you can make if you need to?

I think Steve indicated and Josh in his prepared remarks or maybe Roger we definitely are going to continue to look at expenses aggressively, and if we cut into some of the cultural arteries of the company we're going to have to do what we have to do to maintain a reasonable balance there.

It does get more difficult.

We've got a lot of communities open.

We have certain things that have to be done.

We have to file taxes.

We have to abide by all kind of normal corporate expenses that are necessary, so it gets more difficult, but I would never say never in terms of further cuts being available.

Having said that, we're focused on revenue generation as well, and cost reductions on the house cost side to get to we're very focused on getting to profitability and our view around that is it is not going to be just through overhead reductions.

It has got to be a focus on house costs, disposition costs, incremental margin pickup, where we can on an option here or there on some of the the more selected options, and our operators are keenly focused in that regard, but we still have room to trim expenses if we need to.

Okay.

Just I just want to clarification on one of the previous cash flow questions.

I know there is a tremendous lack of visibility right now, but as you go about your internal planning for '09, are you assuming you'll be cash flow neutral, positive or negative next year?

Josh, this is Roger.

It all depends.

We have to come through the first quarter to get a better view what the demand is, and if a couple of weeks is representative of a full year, it may be difficult.

On the other hand, if there is some continuation of stability in the industry, then there is a chance that it is positive, and we haven't given any guidance on it yet.

We're in the throes of putting our plans together but a crystal ball is very difficult to get a good view of given what we've seen coming through the end of the third quarter and into the fourth quarter, so that's why it is there is really not an answer to tell you because I don't have a good view of it, and as you can imagine we try to get everything from the organization what they think they see, and it is difficult.

The environment is ebbing and flowing almost on a day by day, week by week basis, so at this point I don't have a good answer for that.

Josh, it is Richard.

It is theoretically possible to accomplish a lot of things.

It all has to do with your view of the future, and literally if you wanted to take the view you're not going to tell another house for a couple of years, you could just maintain soft costs and be easier to say yes we could be cash flow positive, but obviously our job is to look out beyond that.

It is pretty volatile at the moment, but we do have levers in our control, and it is not lost on us how important cash is in this environment.

Your next question comes from the line of Chris Hussey with Goldman Sachs.

Please proceed.

Thanks, guys.

Question on the product that you're trying to sell and what might be selling better than others.

Are you making any sort of efforts outside of the Del Webb to sort of change your product physically that can help sell the product to maybe a more cost conscious customer and then are you seeing any particular type of customer who is buying more than other customers?

Yeah.

Chris, what I would tell you is that's exactly what we're doing.

We've probably repositioned upwards of 100 communities this is year where we can where we can continue approval to do that.

It is essentially under building the lot size.

We've impaired the land on the value that now supports when you put a smaller house on it, and you've got a lower building cost where you can get to a price point that as I indicated is much more competitive with what we're seeing out there in the resale market, so our efforts have been to do that, and then continue to try to maintain some sort of margin on that, but it is difficult.

I mean, that is the sands continue to shift underneath us as more foreclosures come into the market, but it is what we get paid to do, and our operators are very, very good at it.

All the efforts that I talked about in the supply chain I know they're invisible to you guys, you can't see them because the sales prices are decreasing as fast as we take house costs out, it seems like, but they're real, and they're sustainable when the market turns around, and we know that when we can get some price stability those things will will become more evident, but it doesn't stop us from setting goals and continuing to work on those things to drive more costs out of the house cost line item which quite frankly is our largest spend, and it is the place where we can get the most traction.

And follow-up question if I could on the revolver.

Do you need the revolver or could you exist without it?

.

Chris, this is Roger again.

We do have our letter of credit on there, roughly $350 million to $400 million.

It is always good insurance to have a revolver to fall back on, especially in uncertain economic times, so on the other hand we don't think we'll be into the lines this year or even potentially text year, but who knows what the time brings, and so from our perspective it is good insurance to have a line.

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

Please proceed.

Good morning, guys.

Good morning, Alex.

I wanted to ask you, I have been kind of looking at the trend in your inventories as well as sales and backlog, and seems to be down anywhere depends where you measure it, 40%, 50% year-over-year, but on the liabilities side accounts payable, accrued expenses, et cetera, doesn't seem to be down in line with those kind of percentages.

I was hoping you could help me understand why that might be the case?

Alex, this is Roger.

I am not sure exactly what you look at and how you measure that, but if I looked at the payables as a percent of inventory on a quarter by quarter basis, it has been running maybe since the second quarter of 2007 anywhere between 22% and 27% of inventory.

Have you to again take a look at the impairments that come through because you still have the physical asset if you make an impairment.

It doesn't necessarily change your payables.

So again I don't know what relationship you're taking a look at there, but it has been pretty consistent and reasonable quite frankly from a quarter by quarter basis over even since 2006 roughly.

Again, payables as a percent of inventory, but you're going to get some sku in there because of the impairment write offs.

Okay.

Maybe I will go back and add those in.

My second question had to do relative to story I guess I came up in Barrons I think in your Chairman has like 12% of the outstanding chairs pledged, I was hoping you could elaborate on that and is there like some price threshold he might be forced to have to sell those?

Again, Alex, this is Roger.

A year ago I guess maybe it was earlier this year, we put out a press release and a public filing on what that was, and it is a forward contract on a stock, so quite frankly all the parameters were laid out in that as well, but that's all I will really comment on.

It is hard to tell again the future, again he has some contracts that go out for some period of time for those, and again what will that be then?

It is very difficult to speculate on that today.

Your next question comes from the line of Dan Oppenheim with Credit Suisse.

Please proceed.

Thanks very much.

Most have been answered but wanted to ask in terms of the areas where you're competing against significant volumes of foreclosures, some of the other builders have talked about they're building different homes there, trying to compete at lower price point, lower square footage of homes.

Have you thought about that and how are you addressing that overall?

Dan, I think I said it a couple of times already today.

That's exactly what we're doing is we have the land there, in some cases developed lots that we have to move through those, and we have introduced many new products typically smaller square footage design to do attack what's coming on in the foreclosure market.

We know if we can get relatively price competitive, and I say relatively because there are always things, very few foreclosures where you can just walk in and go live in them, but where we can get price competitive with the foreclosures, we compete fairly well, and that's in the markets like Phoenix and Las Vegas.

We've been holding our own as we repositioned our product down.

How have your -- any color you can give in terms of the sales activity there in the markets and communities where you have that?

It held up reasonably well.

I mean, Arizona continues to be one of our best markets.

We continue to gain market share there in the new home market which is always a positive sign, but at the same time it is a daily fight, and we tried to look at what's coming at us, and react.

Dan, this is Richard.

I would just add that it's helped.

It doesn't mean it solves any of the global issues, but it has helped on a relative basis.

Great.

Okay.

Thanks very much.

Your next question comes from the line of Carl Reichardt with Wachovia Securities.

Please proceed.

Good morning, guys.

How are you.

Good morning, Carl.

I am curious, you obviously have seen and looked at the data here in California at least where we're seeing a substantial increase in some of the parts of the state and turnover activity in the existing housing market and a lot of that is foreclosures.

In talking to your guys in the field do you think that the foreclosure activity turnover is invest or related or do you think it is your customers, your potential customers buying that product instead because I think the answer to the question has some influence on how recovery might look in the new housing market.

Yeah, Carl, it is clearly some of both.

I can anecdotally tell you stories in some of the larger markets where investors have gone out and pooled money and they're turning those over into rentals quite frankly, going in and doing certain things and in it for the long haul, but clearly, too, we get individuals that we're shopping new home end up buying foreclosure.

I think it appears just again without any statistics, and we've been digging hard to get numbers on who's buying what, and we kind of get a little closer every time we look into it, but it appears to be a lot of the former, and that there are investors out there rebuying these properties at much lower prices, and as long as they become long-term investors and holders of the property, I think that bodes a little bit better for us, but it is still a supply side relative to demand side issue on an overall basis, and it is just tough.

Thanks.

Then, Roger, ask the Congress Dennis' question half an hour ago about markets you might be interested in investing in.

Given the thought that your cash flow will be less in '09 and to think about renegotiating the revolver, business is tight, are there markets you consider getting out of or would you consider more seriously now potential bulk land sales especially given that you pay taxes in '06?

Is that a consideration beyond what's on the balance sheet already in land held for sale?

Right.

Again, the bulk sale was not part of our strategy, and I think you can clearly see that right now our view of a tax refund for next year, early spring, based on this year close to $248 million is what we have on the balance sheet.

Again, we don't feel it was necessary to try to hurry up and do bulk land sales.

Quite frankly bulk land sales you're getting roughly $0.10 on the dollar to capture that, and those that are doing it are doing it for a reason because it is growing into their strategy of having to pay down debt early next year.

Again, as I mentioned earlier if cash flows are going to be less in 2009 where are they going to get it, this is the way to do it.

We felt we've had a cash balance to be able to maintain ourselves through that and that we don't have any debt due in '09, about $25 million left on the notes of '09, and then nothing until 2011, so we're in good shape from that standpoint overall.

As far as leaving markets, I think Richard mentioned this in past quarters as well that we're comfortable in the markets we're in, and we don't see ourselves exiting quite frankly as per verse as it may sound we're picking up market share in a lot of markets because a lot of people are pulling out of those markets.

It is not that our business is robust in that market, but we are picking up share because other builders are leaving, so we do think we're in a better position there when the market does turn, and again we've not selected any market that is we're unhappy with today from where we were invested.

Terrific.

Actually could you also, Vinny or somebody, you have the actual community count for the quarter, sorry, I meant to ask that.

Yeah.

We ended the third quarter at roughly about 561 communities.

That's average or quarter end, Roger?

That's quarter end.

Great.

Thanks much, guys, appreciate it.

Thank you.

Your next question comes from the line of Rob Stephenson with Fox Pitt.

Good morning, guys, Richard, you talked at the beginning of the call about $20,000 tax credit and possible mortgage buydowns as programs that might be able to help the industry.

Historically, you know, you guys I am thinking the home builders collectively, Fannie, Freddie, the relate and others have formed a very powerful housing lobbying effort but now you have Fannie and Freddie dropping out, so I am curious when you're talking with the trade groups and lobbyists, how receptive is Congress to a program like this these days?

Rob, I think we formed a stronger alliance than we probably have working collectively with the National Association of Home Builders, reaching out to other trade groups, and the discussions are beginning in earnest.

Clearly the discussion earlier has upped the an at the for something else to be done in the industry.

Seems like every politician including members of Treasury and Fed have agreed housing is at the epicenter of the problem yet none of the stimulus being discussed is directly aimed at the heart of the patient, so I believe we have a more receptive audience than we have, and frankly we're more organized in the last couple of weeks to push for that effort than we have been.

More to follow, and I personally am very involved as are many of my peers just in the last couple of weeks on really focusing on that issue because as I indicated in my prepared comments in our view it is either that or a lot more time for this to work itself out.

Are you worried at this point?

Congress is basically going to recess, there may be some sort of quick lame duck session, but basically you're not going to have any sort of real movement on this until probably like February?

I mean, given the way that things are, are you worried that even if something like this passes it may be too little too late?

Clearly the longer it takes, Rob, the less effect it will have on near term results but frankly even on the liquidity the Fed pumped into the system takes time to have effect.

Whatever we get done will take time, but I will not rule out a lame duck session that gets something down for housing.

The water is getting incredibly deep, and I suspect that the news is not going to be great in the near term about the economy, so we're focused on that, and fen if that fails, clearly we're focused on early next year, but your point is is not wrong, the long longer it takes to get something done, the longer it will take to get recovery.

Thanks, guys.

Thank you.

Your next question comes from the line of Jay McCannless with FTN Midwest.

Please proceed.

Good morning.

Good morning.

Wanted to ask another question about the tax refund.

What I guess a different way, what is the upper boundary of the tax refund you could re claim this year based on previous taxes paid?

Again, Jay, this is Roger.

If you look at the tax payments roughly $450 million to $470 million I think was what tax says we had paid in 2006.

So that's what would be basically available to carry back.

Okay.

Should we factor that upper boundary into what impairments might be in the fourth quarter?

I think what's happening more so in the impairment sincerely they're later phases, so we're not seeing the benefit in the current quarters from some of the impairments that have happened in the last quarter, so if you got out phases that may not hit until 2010 and 2011, you know, that wouldn't be the case.

So again I think quite frankly we don't know a what impairments might be in the next quarter, so that's why we're not projecting any of those and haven't been able to do that.

All I tell you is what's on the balance sheet today is $248 million, all depend end on what you sell quite frankly to be able to capture is, we're not doing bulk land sales, so it is just a matter of what you can actually sell through there or we do have some land positions out there for sale, but we're not doing like others are doing to bulk sales to try to capture that, so I don't know what you do, but again we have $248 million and that's a view for the end of the year.

It is a view that you have to look at towards the end of the year, not a quarter by quarter, so our expectation right now is $248 million.

That's helpful.

I have one quick follow-up.

In the negotiations Pulte is having with banks looking to sell property to Pulte, what is the tenor of those negotiations been?

We've heard anecdotal remarks that some of the money that may be floating to some of the banks that banks have started holding price.

Just wanted to see if that's been Pulte's experience or not?

I would tell you generally speaking throughout this year there has not been a lot of conversation.

A lot of banks have not pushed it out.

I think what the banks did this time around in a lot of these is they've had consortiums even with the banks where a number were in some of these ventures, so it is a group thing now.

As it is a I number of banks sitting at the table and a number of people involved, and so there has not been a lot of land come out of the banks at all.

I think generally a lot of banks have not written down the assets to the way I think the builders have, and I think there is an unrealistic expectation on the bid and the ask there still.

There is a spread, and that's going to make it much more difficult.

I know that we've had some conversations, I think what the banks don't realize is that they may get the land back, the bad news for them is they get it back but they have to put money into is because taxes and maintenance and all of the other stuff still continue, so I don't know that they understand it all that well from the servicing that has to go on in the future, but again said, there is not a lot of it flowing in the market, and those that have again there was still a spread between that and I would tell you not a lot of transaction has taken place.

Some of the hedge funds and stuff like that are out there buying up some of the land, but the builders themselves you can see by what everybody has talked about in the industry is just not a lot of land being acquired by builders today.

Okay.

Great.

Thank you.

Your next question comes from the line of Michael Rehaut with J.P.

Morgan.

Please proceed.

Hi.

Thanks.

Just a couple of quick follow-ups.

I was wondering if you could give the -- sorry if I missed this -- the homes under construction number and also I just had a quick question on the can rate.

Sure.

Sure, Mike, let me get the homes under construction.

While Vinny is getting that, what's your question on can rate, Mike?

Thanks, Richard, just obviously kind of bumped up this quarter, and maybe not what you -- maybe you had been expecting more of a continuation of the last couple of quarters, and just wanted to know if in your opinion that was more just due to consumer trepidation and pulling back or was there a pickup in financing issues and tighter credit in terms of people getting turned back from mortgage science.

Mike, I think I indicated earlier, allude to do this, but things changed in the middle of September again, and it was all the above.

Effectively a lot of folks that were on contract decided to not go on contract or not stay rather due to financing issues and maybe just concern over the value of their home but also the net new orders slowed down dramatically towards the end of the quarter based on the incredible financial turmoil that happened in the last bit of September and I indicated into October, so it was kind of a tale of maybe one expectation that had been experienced earlier in the quarter and then things changed at the end, but combination of things.

Vinny has your answer on homes under construction.

It is 8,600 homes under construction at the end of the quarter.

Your next question comes from the line of Jim Wilson.

Please proceed.

Hello.

Thanks, guys, I missed a few minutes of the call so don't know if this was asked, but on Del Webb looking for a couple of pieces of information, basically if you could give any rough cut or any total company inventory how much of it either on lots or dollars is web and then the second one can you compare the relative level of profitability between Del Webb communities versus conventional Pulte?

Jim, this is Roger.

Again, we don't disclose it that way quite frankly, and we did it more on a market basis and not a product group basis if you classify it that way but roughly 40% to 45% of our business has been focused on the active adult segment and the majority of that is Del Webb, so typically again if you look at our invested capital, from even asset basis, roughly we're in that range, it is very hard to give a very specific number again we don't break down all of our balance sheets and payables and all of that other stuff specifically by the product group, so again general direction our business has been in the 40%, 45% range.

And is there relative level of profitability, I think you mentioned before web margins typically have been better, but is that still generally true or anything you can say?

I would say still generally.

The active adult even Del Webb specifically is higher margin business, and you would expect that quite frankly.

We're working on a return basis typically in those communities, and of course that's changed quite dramatically over the last number of years, but still we have that gap between the traditional side of the business and the active adult where the active adult does garner higher margins relative to the traditional side and of course a mix that flows through that as well because again you look at what the traditional side is and the price points of the entry level and first time buyer relative to the active adult buyer, but again generally direction has been that margins have been higher, yes.

Thanks a lot.

Thanks, Jim.

The time for Q&A has expired.

I would like it turn the call back over to Calvin Boyd for closing remarks.

Thank you, Heather.

Thanks to everyone for your participation on the call today.

If you have any follow-up questions, please feel free to give me a call.

Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.