托爾兄弟 (TOL) 2008 Q1 法說會逐字稿

Good afternoon.

My name is Tasha.

I will be your conference operator today.

At this time, I would like to welcome everyone to the first quarter earnings conference call.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Toll, you may begin your conference.

Thank you, Tasha.

Welcome, everybody.

Thank you for joining us.

With me today are Joel Rassmann, Chief Financial Officer; Fred Cooper, Senior Vice President of Financing Investor Relations; Joe Sicree, Chief Accounting Officer; Kira McCarron, Chief Marketing Officer; Don Salmon, President of TBI, our mortgage company; and Greg Ziegler, Vice President of Finance.

Before I begin, I ask you to read the statement on forward-looking information on today's release and on our website.

I caution you that many statements on this call are based on assumptions about the economy, world events, housing and financial markets and many other factors beyond our control that could significantly affect future results.

Those listening on the web can e-mail questions to rtoll@tollbrothersinc.com.

We'll try to answer as many as possible.

Today we announced final results for earnings, revenues, contracts and backlog for our first quarter ending Jan 31, '08.

I assume that you've seen the release which we put out this morning and is on our website at tollbrothers.com.

Therefore, I will try to hit the highlights, or the lowlights, make a few comments and then go to Q and A.

In fiscal year '08's first quarter, Toll Brothers generated a net loss of $96 million or $0.61 per share diluted.

This included pretax write-downs of 245.5 million, 27.8 million of which were attributable to joint ventures.

Excluding write-downs, fiscal year '08's first quarter earnings were $57.3 million or $0.35 per share diluted.

For comparison, fiscal year '07's first quarter net income was 54.3 million, or $0.33 per share diluted after pretax write-downs of $105.9 million.

Excluding write-downs, fiscal year '07's first quarter earnings were $118.9 million, or $0.72 per share diluted.

Fiscal year '08's first quarter total revenues were $842.9 million, 23% lower than fiscal year '07's first quarter total revenues of $1.09 billion.

Fiscal year '08's first quarter end backlog was $2.4 billion, 42% lower than fiscal year '07's first quarter end backlog of $4.15 billion.

Gross signed contracts for fiscal year '08's first quarter of $573.1 million and 904 homes declined 46% and 38% respectively versus fiscal year '07 same period totals of $1.07 billion and 1,463 homes.

In fiscal year '08's first quarter the company had 257 cancellations totaling approximately $198 million compared to 436 cancellations totaling $318.9 million in fiscal year '07's first quarter and 417 cancellations totaling $328.5 million in fiscal year '07's fourth quarter.

Fiscal year '08's first quarter net, after cancellations, signed contracts totaled 647 homes or $375.1 million, a decline of 37% in units and 50% in dollars compared to fiscal year '07's first quarter results of 1,027 net signed contracts, or $748.7 million.

We ended fiscal year '08's first quarter with approximately 55,000 lots owned and optioned compared to approximately 91,200 at our peak at the second quarter end of fiscal year '06.

We ended the first quarter with 315 selling communities, down from the peak of 325 at second quarter end, and expect to be selling from approximately 300 communities by fiscal year end 2008.

The selling season, which we believe starts in mid-January, has been weak for the third year in a row.

We've seen a few glimmers of hope.

For example, in the Naples, Florida, area and the suburban Washington, D.C.

market.

The improvement in Naples, which was a tremendous market before the downturn, is noteworthy because from March '06 through late '07 it seemed as though we couldn't give a home away in that market.

In metro D.C., which was among the first markets to weaken, we've seen the glimmer before and it faded, perhaps this time it won't.

We continue to conservatively trim our land positions and focus on maintaining our strong balance sheet and liquidity.

Our net debt-to-cap ratio at Jan 31, '08, stood at 26.8%, our lowest level ever compared to 31% one year ago.

With over 950 million in cash and over $1.2 billion available in our bank credit facility, which matures in March 2011, we believe we're positioned to profit from opportunities that may arise in the current market.

Now, let me turn it over to Joel to further do numbers.

Thank you, Bob.

First quarter home building cost of sales.

As a percentage of traditional homebuilding revenues before interest and write-downs was 74.6%.

This was higher than the first quarter of '07's cost of sales which was 71.1% and also higher than 2007's fourth quarter which was 73.7%.

The increase in cost of sales or decrease in margins from the fourth quarter was principally a result of product mix and higher incentives in this quarter's closings.

First quarter interest expense was 2.5% of revenues, which was 30 basis points higher than the fourth quarter of '07's, principally a result of inventory turning less quickly and lower inventory to spread the cost to.

Interest expense as a percentage of revenues will probably trend up slightly for the rest of the year.

The first quarter pretax write-downs were $245.5 million which included $27.8 million of write-downs attributable to joint ventures and $72.5 million attributable to options as we continue to reevaluate, renegotiate, in some cases walk away from options.

Approximately two-thirds of the first quarter write-downs were in Florida, Nevada and Arizona.

First quarter SG&A was $121.3 million, approximately 14.4% of revenues compared to $134.2 million, approximately 12.3% of revenues in the first quarter 2007.

First quarter other income was $20.1 million, including approximately $7 million of retained deposits and $8 million of interest income.

Given the current environment of lower investment grade opportunities, I would expect interest income to be lower in the next few quarters.

For the first quarter the effective tax rate was only 37%.

As income shrinks or becomes negative, as in this first quarter, small changes in the allocation of income between states has a disproportionate impact on the effective tax rate.

The average number of shares used to calculate earnings per share was 157.8 million.

The creation of projections is difficult at any time.

In this climate it is particularly difficult to provide guidance given the numerous uncertainties related to the items such as sales paces, sales prices, mortgage markets, cancellations, market directions and the potential for and size of future impairments.

As a result, we will continue not providing detailed guidance earnings at this time.

However, subject to our normal caveats regarding forward-looking statements in our SEC filings, and as Bob mentioned earlier, as well as caveats discussed above, we still estimate that deliveries for the year will be between 3900 and 5100, the average delivered price for the year will be $630,000 and $650,000 per home.

For those of you who model quarterly, we expect the average delivery price will decrease sequentially each quarter over the year so the average in the second quarter may be lower than the first quarter but higher than the middle of the range, and the average in the fourth quarter will probably be lower than the middle of the range.

We believe that due primarily to continued incentives and slower sales per community, cost of sales as a percentage of revenues before taking write-downs into account will be higher in fiscal 2008 than in 2007 and may increase during the year.

Additionally, we believe that based on 2008's lower projected revenues, our SG&A, which we expect will be lower in absolute dollars in '08 versus '07 will be higher as a percentage of revenues, and because revenues may be more evenly distributed throughout the year, may not show the normal declines through the quarters as a percentage of revenues.

At this point I will turn it back to Bob.

Thanks, Joel.

Ceaseless talk of a recession and of declining house prices continues to dampen the mood of consumers in general.

Home buyers, we believe, is drum beat coupled with concerns over mortgages and foreclosures has kept pint-up demand on the sidelines.

Household formations continue to grow as they are projected to do into the next decade.

Personal wealth continues to be created as well.

Mortgage rates are low, unemployment is still low by historical standards, and housing affordability has continued to improve.

Conforming and jumbo mortgages are quite available to buyers, such as ours, with strong credit scores and reasonably leveraged home purchases.

We believe that revived buyer confidence is paramount to getting the market moving again.

Only when customers believe we are done with housing deflation will the excess supply clear and the market return to equilibrium.

We are certainly in a buyer's market.

When our customers recognize they can only take advantage of a buyer's market by buying, we will be back on track.

Now let me open it up for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from line of Ken Zener with Merrill Lynch.

Afternoon.

Larger question about your gross margins given its resilience to date.

As recently as '99, which was seven or eight years after the last recession trough, your margins kind of trended down to be 22% versus the 25% we're at today.

Is there any reason to assume your margins wouldn't float down to that level this cycle, and how large a role did rising home prices play in your ability to kind of set that floor last time?

Seems as though you've answered the question but Joel why don't you try.

Every piece of ground that we put under control with every geographic region ends up having slightly different results and when 2009, and I can't remember -- actually 1999, was floating around and I can't remember what the mix was, my guess is we were probably entering a bunch of new markets where we didn't do a lot of land approvals for the ground that we opened and we also had some acquisitions that have taken place both in 1999 and 1997 with purchase accounting negatively affected those margins.

So I don't think there is a comparable period of time to use 1999 to today because it was effectively impacted by at least two acquisitions that were done in 1997 and 1999.

Pretty good memory.

And if you could kind of talk about two things.

How much you've taken down your hard costs as well as vertical costs, as well as talk about the operating margin by segment relative to the 4Q.

Thank you.

You're welcome.

Joel.

During the quarter, costs went down another -- about another half a percent on bricks and sticks but it changes, and I don't have it broken out by product line nor geographic respect in that way so is I'll pass for the rest of the question.

Thank you.

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

Wondering if could you give us some thoughts on the recovery that you're seeing in the Naples and the D.C.

market and how you're measuring that.

Is that traffic?

Is it absorption?

Is it sales price kind of stabilizing?

The way we measure it is by comparing the sales week to week on a year-over-year basis.

I'm sorry, I said it wrong.

It's just a year-over-year basis.

On a week-to-week basis of course everything looks good because you've come out of the Christmas and New Year holidays and people are just laying around, recovering from New Year's Eve, then finally they get out and start to look at homes, and that market builds until you get to President's Day weekend, which is generally about the best of the year.

So on a week-over-week basis, everything looks pretty good, but the only way you can really see how you're doing is by going on a year-over-year basis and even tracking it back to the same week, going all the way back to 1990.

What we saw in Naples was a very high rate of sales compared to where we've been for the last year and a half.

Shockingly so.

And even selling, as opposed to getting rid of spec inventory, selling some to-be-built product again in the Naples market.

That rang a bell for us and indicated that we could be, it's only a four-week time period that I'm discussing with you, we could be on track for better times.

Washington, D.C.

I think I was quoted as saying we were dancing off the floor.

That was about a year ago, by recollection, and it faded.

This time I'd characterize it as a glimmer of hope.

We did get much stronger in the D.C.

market and we got extremely strong in the Maryland-D.C.

marker as opposed to the northern Virginia-D.C.

market.

But I'm not willing to say as of this call that we're back.

It's a glimmer and let's hope that the good times stick for those markets.

Great.

If I could just get a follow-up.

I was wondering, Joel, you have unsold homes for a community that are in progress for finish?

I think we did.

I don't think I have it per community, but I think we had unsold homes down for single family and multi family homes in the last conference call and they were down from, they were down sequentially about 70 units, which is about 7%.

And on a per-community basis, I don't know, probably around the same.

Okay, great, thank you.

You're welcome, David.

I don't want to give an impression by my exuberant description of Naples and Washington, D.C., northern Virginia and Maryland that we're on the comeback trail because there's a lot of other markets out there that haven't spoken.

We also had some good times in the Connecticut market in the last four weeks.

Hoboken and Jersey City continue to do real well for us in the urban high rise, but there are another 35 markets out there that we're still waiting to see hope in.

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

Morgan.

Thanks.

Good afternoon.

First question is a bigger picture, then second question on some specific numbers.

But, bigger picture, you like to talk about how over the last 20 years you've taken advantage of downturns to enter markets, gain footholds, I think even starting out you were based in Philly and New Jersey and you were able to break into the D.C.

market in the '90-'91 recession if I remember right.

Today obviously great cash position.

Obviously, though, also a much bigger geographic footprint.

So as you see opportunities, the question is are you looking to opportunistically buy assets in any given market or are there specific markets that maybe you're not in today or have a relatively smaller position that you'd want to focus on before others?

No is the short answer.

We are not strategically tuned to looking for opportunities in specific geographical areas that we're not in yet.

Rather, it's your first supposition, which is we have our store open and we're ready to take advantage of whatever opportunities come.

We're not especially interested in places where we're not at the current time.

We're just interested in trying to find good deals.

And there are no markets where you would kind of -- that you've stopped buying land that you'd take this opportunity to actually exit at this point?

No, we haven't got any markets that we want to exit.

There's about 30 markets I'd like to exit and get back into when they come back, but we don't plan to exit any markets permanently.

Right.

The second question, benefit, if you could, Joel maybe if you have the number, what was the benefit in the gross margins from prior impairments, roughly?

I think it was $16 million -- $11 million.

Just 11?

Just 11.

Just 11.

And lastly, the option of walkaway costs took a nice stepup this quarter.

If you have, what's the balance on your books in terms of option deposit and pre aq cost?

The walk away from obvious eying?

I don't remember.

Maybe Joel remembers it.

Not necessarily walk away of option costs.

In some cases the option may not have a van.

We may not have walked away from the cost -- from the option.

Okay.

All right.

I'll follow up with you.

Thanks.

Thank you.

I have a question e-mail from Angie Salom.

It says, hi, I was wondering if you could provide any detail as to what your cash balance is invested in.

Do you have any exposure to the auction rate security market?

Thank you, Angie.

We did have tremendous exposure to the auction rate security market.

I don't know what made me think of it, but about five weeks ago, we bailed out of everything but about 80 million, as of weeks ago, and we have still left in the auction market about 20 million right now, which we still feel still pretty good about.

Thank you, Angie.

Your next question comes from the line of Doug [Kass] with Sea Breeze Partners.

Hi, Bob.

Two-part question.

First question, my understanding is that Toll based on 12-month trail at closing now has about five years of land inventory.

So, question number one, over the last two housing cycles, can you give us lowest land inventory you had, again is measured in years, the highest level of inventory you had, and the mean level of inventory?

You could have stopped with the first typo.

No, I don't think so.

Anybody here have that information?

No.

Sorry.

Let me ask Joel.

We can get it, and we'll get it to you.

Thank you.

Second question is, in such a difficult, Bob, and uncertain residential housing market, explain to us how you're going to manage inventory going forward and what are your principal forecasts?

How am I going to manage inventory?

If it's a spec home, I'll do my best to get rid of it.

I'm really not talking about the immediate, the next 12 or 18 months.

I'm saying looking beyond that.

Looking beyond the next 12 or 18 months?

I'm not good enough.

You don't want to join my club.

Very conservative underwriting.

In terms of how we're selling homes, we've increased the deposits on the to-be built homes to make sure we drop the level of cancellations which have been very high to our traditional average.

For 30 years or 40 years we ran about 7% for cancellations and we're now running like 25 to 30% of cancellations which is ridiculous.

Unfortunately, raising deposits won't stop it entirely because we have some huge deposits that have been walked away from.

On those communities where we have not been collecting good size deposits, we've increased it to make sure that we have a better chance of seeing that completed home go to market and be titled out to the buyer.

We conservatively underwrite the deals that we're looking at, very conservatively.

We believe we're only taking killer deals but only time will tell.

Thanks, Bob.

You're welcome, Doug.

Joel?

The other part of it is that we've increased underwriting standards on deals a number of years ago and continue to when we look to take down land we will put it under control.

Your next question comes from the line of Megan McGrath with Lehman.

Good afternoon.

Bob, you've previously been a little bit skeptical when asked about government proposals.

Just curious as to your thoughts on the lifting of caps today.

Does that mean any incremental good news for you?

Yes, there's been some stuff.

Fannie/Freddi increased amounts of what will be conforming mortgages for jumbos is, I think, a great help when they get it together.

Don?

They also raised the capital limits today.

Not just the loan amounts but today they essentially removed the amount they can put in their portfolio.

That's what Megan just said.

That will help us.

Some of the things I think put us at risk.

There's conversation about changing the bankruptcy law to permit cram-downs of some mortgages.

I would urge the Congress not to futz with a mortgage system that gives our country the greatest home ownership rates in the world.

I think that's dangerous.

We all want to help those who are being foreclosed on that were led into a bad situation by predatory beasts, but we don't want to throw the system out that we've got that's worked so well in order to aid future people who may be subject to predatory lending practices.

I think the -- I would urge the Congress that the best thing that they could do is to try and offer, instead of rebates, of course, I'm very partial to the housing industry, but a tax credit for the purchase of a home.

Anything to get the housing asset rising again will be a tremendous help of course to our businesses in the home building industry, but also a tremendous help to the bond market because when the basis of the bond with the asset in the bond which is for mortgage back security which is obviously home prices, when that asset is deflating, nothing can save those bonds, and that can bring on a tremendous credit crunch and I believe is.

But if those assets stop deflating and start inflating once again, start appreciating once again, then all the bonds will be good.

It doesn't matter whether the mortgagor is paying or not paying.

If the mortgagor is not paying, but the asset is appreciating as it has almost every year since the second World War, then the bonds would be in good shape.

So I would urge the Congress to look at laws to try and -- new reg tax break to try and spur home ownership again, and I think that will get the bond market moving again and then we'll all get healthy.

We hate to bail out predatory lenders and foolish speculators, but I think we hate even more to be left on the sandbar as the tide goes out.

Sorry for that long answer.

Thanks a lot for the color.

One follow-up question.

In terms of cash, you've got a lot on the balance sheet.

You're talking about some glimmer of hope.

At what point do you think you may or would you ever this year consider doing stock buybacks?

I think I would rather have my cash.

I think I can make more with my cash by buying great opportunities and by buying my own stock.

That isn't to say I hate to give a negative ad.

It isn't to say that my stock isn't a great buy, by the way, I have no idea.

But I think we'd be better off holding our cash and looking for opportunity.

Great.

Thanks very much.

You're very welcome.

I've got a question from Edward Ryan.

Can you talk about the availability of mortgage financing to your customers?

Yes, it's very plentiful.

Don Salmon, the head of our mortgage can address it.

Our buyers have great access to capital.

We have over 20 investors that we can sell loans to right now.

People are actively seeking business from our buyers and banks continue to look at it more as a customer acquisition rather than just an asset acquisition and they find customers to be very viable and attractive to their entire bank portfolio.

Our interest rates continue to be lower than the market in general.

So we think the mortgage situation for our customers today is pretty good actually.

Now, the problem is not the mortgage availability for our clients.

The problem is our buyers' buyer's mortgage and their buyer's buyer's buyer's mortgage.

As you go down the chain and people are pushing, our average LTV is still like 73%.

70 to 71.

But our buyer's buyer's buyer's may not be at 70 but may be at 90.

They may not be as creditworthy and they're definitely having a harder time buying mortgages.

Especially higher LTB--

Right.

And we do what we can to help the chain move along so that we can make our sale, but it's more difficult.

Thank you.

Your next question comes from the line of Buck Horne with Raymond James.

Good afternoon.

Couple questions.

Of your remaining lots you have left, how many are undeveloped lots and, number two, have you guys -- can you provide some additional color on your CapEx budget for land development and acquisitions for 2008 and relative to what that was in 2007?

Joel?

We don't have -- if you have the board book we can tell you unapproved versus approved.

We don't really do it that way.

Every community done is a separate decision making process, and so the numbers I would give you for CapEx would be meaningless.

When I started this, and I foolishly answered this question two years ago and I said a $1.5 to $2 billion for my CapEx and I came in at 700 million for the year, I realize it's not a question I should be answering because every community changes all the time.

It's pushed out, it doesn't get bought.

So it's not an answer I can give you.

Improvement, substantially improved, lots we'll try to look it up for you.

You had an open question before.

Approximately 16,000 lots substantially improved.

Great.

Thanks, guys.

We had a question before that we owed an answer for.

The pre development costs and deposits for future deals is about $212 million at the end of the quarter.

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

First question I wanted to ask was a follow up on the mortgage availability situation.

The higher conforming loan limits that was something that was obviously passed, approved by Congress.

It's not going to be implemented for a few more weeks here I think.

So my question is --

We hope in a few more weeks.

My question was are you underwriting any mortgages originating any mortgages that will meet those standards in anticipation of that or are you waiting until everything is finalized and all the I's are dotted and the T's are crossed before you begin to take advantage of that?

Don.

We're not promising anything to our customers yet because we don't know what we can promise them.

What we will do is once all the guidelines are clearly established and once we know the pricing we will underwrite it to that, but right now we're just underwriting to our standard conforming and jumbo guidelines.

I see.

So your customers haven't seen any rate benefit yet from that?

Not yet.

The Delta between the conforming and jumbo on immediate delivery market is a half point, 5-7/8 on a conform and 6-3/8 on a jumbo.

So it's not that great a concern.

That's actually our spread which I think is a little bit less than the market.

We happen to enjoy pretty good spread with that because of the quality of our customer.

So, as far as our customers are concerned, that spread is not that wide.

That's very helpful.

Scottish banks rate --

Bank of it Scotland.

the Royal Bank of Scotland.

But is most of that jumbo coming out of Royal Bank?

That particular rate is coming out of Royal Bank.

That's what I thought.

That was a committment we got a couple of months ago at least, September/October.

We signed up a half billion dollars from the Royal Bank of Scotland.

Got it.

The second question was on your community counts.

Those were still rising into early '07.

Obviously they've leveled out here and are going to fall this year.

We hope so.

Yes.

A lag based on when the downturn begins, so my question is when demand does ultimately recover, should we e expect a similar lag like that, in terms of you being able to ramp up your community count, or is it going to be easier on the way out to kind of open up --

It would be easier than it was when we were ramping up during the good times.

Because we have communities that we can pretty rapidly access.

In our business if you decide to open a community, unless you've got all your permits in line, which we have on quite a few that are not open now, it can take you years to open up a community, not just months.

So we should be able to ramp up much faster when the market changes, which it will.

Thank you.

I have a question from Harper Phillips.

What is the average cost basis per lot of all the lots owned, controlled on an unimproved basis of the 55,000 lots.

Roughly $75,000.

I'm not sure that helps you.

Of course, it includes tower projects in New York City and single family products some places and multifamily in others, but $75,000.

Yes, sure it helps.

It's too high.

Your next question comes from the line of Alan [Rettner] with [Zilman] and Associates.

Gentleman.

I had a quick question on the tower side of continues.

Was hoping you could provide some color on your backlog there both from a new product standpoint coming online in the next year or so and also from a closing standpoint over the next few quarters.

We're sold out in Manhattan.

We have just begun another project in Manhattan.

It will be a joint venture.

Joint venture.

That's at 2nd and 32nd Street -- 33rd, sorry.

Maybe it's between 33rd and 32nd.

East 33rd Street.

All right.

Thank you.

That's how many units?

About 125 as I recall.

Brooklyn we have one tower almost completed and about 70% sold, a little less than that, 65%.

Brooklyn has slowed down.

The other projects in Brooklyn are pretty well finished off.

The projects in Hoboken and Jersey City, as I referenced before, are selling very well and progressing nicely.

Was there another point?

I need to clear up probably a misunderstanding.

From an accounting standpoint what we marked as percentage of completion businesses which was named towers by most people who have been following us, is basically ground down.

Very few units left in those buildings.

All of our other buildings are accounted for on a completed contract method, whether they're towers, mid-rise, or single family homes because of the economic additions and the inability to predict and the inability to take enough deposits to predict, down payments to predict.

So when you talk about towers, we talk about towers being products that may not be accounted for as a percentage of completion unit.

Does that help?

That does.

And if I can ask one follow-up, just was hoping for a little bit more discussion on the SG&A.

It looks like this year it was down about 10% year-over-year, and your revenues were obviously down more than that, about 23%.

I don't think -- finish your question.

I was just asking kind of what steps you're taking there to bring that more in line, and obviously you set's going to be up on a year-over-year basis as a percentage of sales but kind of what your timing would be to kind of bring that more in line with the drop in revenues.

First, the first quarters are an anomaly because of accounting for options and also because of some reversals in the first quarter of last year, so I don't think you can judge it down expenditure standpoint.

We have cut overhead significantly more than that 10%.

So are you expecting --

As demand is down, production is down.

We hope to be able to stay in line with our overhead.

We keep reducing our overhead to meet the need for same.

Okay?

Okay.

Perfect.

Thank you.

Thank you.

I have a question from Briggs Phillips.

Why are grossed signed contracts $633.9000 per unit so much higher than net signed contracts, 579.8?

I thought we answered that in our release, but go ahead, do it again.

The answer is that the cancellations had a higher average sales price of that 771,000 and that brings down the average when we net the cancellations against the signed for the quarter.

Thank you, Joel.

Your next question comes from the line of Susan [Berliner] with Bear Stearns.

I was wondering if I could ask kind of a big picture kind of stepping back question because it seems that a lot of people are getting, and I'm not saying necessarily you, Bob, a little bit more comfortable with housing, but I guess in terms of kind of looking out there, in terms of M&A, I was wondering if you can kind of update us your thoughts as to when you think it could possibly begin.

It could begin tomorrow.

I can't give you any more guide than that.

We don't have anything to announce.

What about, I guess you guys have talked openly about look at opportunities.

You obviously have a lot of cash.

Would it be a focus on kind of busted joint ventures, is it going to be a focus on land?

Can you elaborate on that?

No.

There's other options as well but you've named two of them.

Busted JVs and land certainly should be opportunities that we'll get to look at.

So far we haven't seen that many.

They're just starting to come in from the banks.

I saw my first portfolio two days ago.

There's another one that -- Two more that have come in that haven't reached me yet.

So we're just starting to see the product come through the pipeline.

Great.

Thank you.

Pasha.

Your next question comes from the line of Joel Locker with FBN Securities.

Hi, guys.

Just wanted to follow up on the SG&A just to see if you had a break down of the 121 million through of head count and selling expenses and stock compensation.

No, but the stock compensation, the option compensation because our people tend to be a little older, gets hit in the first quarter, substantially in the first quarter, and that was about $12.5 million of the charge for stock just in the first quarter.

12.5 million.

And what was it a year ago?

The same?

I don't know, but less than that.

Less than that.

And no ballpark figure for overhead of the 121 million?

No.

No.

All right.

Thanks a lot.

You're welcome.

Pasha.

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

Hi, guys.

Hi, Alex.

I was hoping you could talk a little bit about your I guess joint ventures with the focus property group in vegas, just kind of roughly what is your exposure either in terms of lots or dollars?

Have those been impaired?

And also how is the debt structured in those projects?

I'm going to turn that one over to Joel.

I think we're going to pass on that question.

Our debt is non-recourse in general in joint ventures, and I think that's the way we'll leave it that way.

Okay.

And my other question was some builders I guess have sold some land, other guys sound like they're getting ready to sell land.

Any plans on your part to sell land or do you consider yourself more buyers of land?

We consider ourselves both.

We're definitely buyers.

And to the extent we can figure out how to get back tax refunds by selling some land, we will do so.

We're studying it now.

We're in a little different situation than the other guys because we made money in '06 and '07, and in order to take a loss, you can't do it just on a community or ground basis.

You've got do it overall.

So we've got fate our way through profits in order to get to a loss, and we have to think about how much of a discount we want to give in order to be able to grab the tax loss while not hurting assets or getting rid of assets that are worth more than they would be to the market to permit us to take the loss.

So can't give you an answer yet.

Joel, you have anything to add to that?

No.

Okay, thank you.

All right, thanks.

You're welcome.

your next question comes from the line of Timothy Jones with Wassermann and Associates.

Hi, Bobby.

Hello to the other five of you.

Thank you.

Couple questions.

There's a lot of information in this call, but the one question one of your major competitors, not in your price range, said that raising the limits on loans would be the most promising thing key imagine.

And my question is, and I know is this, you've talked about the one half a point difference on your new home buyers.

I want to know the effect of this change on your existing buyers who may have bought a little too high but can now have the ability that they still have the -- to take a jumbo mortgage to get a conforming loan, and to really help the housing situation that way, which I might -- I think is probably a much greater effect on the industry.

I agree with you, Tim.

In talking to some Senators, in pushing for the raise of the cap, I took that exact position, that while our buyers are able to secure financing, their buyers are not, and if their buyers are trying to sell a 500 or 600,000 product that requires financing of over 417, which is where the limit was, that it inhibits the entire daisy chain from moving which inhibits the housing market and if the housing market is inhibited, if the's not going up, it must be going in the other direction, which is down.

So I think this will have a significant impact on the housing market and the daisy chain as you've just said.

I was astounded, Bobby, to hear you say a tax credit for the purchase of a home.

Looking at those two situations, wouldn't you think -- now I'm talking for the entire industry, not your company, that the raise in the limit and allowing other people to refinance their homes, too, which we haven't gotten into, is much more important?

We're transitioning, in your question from mathematics and business examination to almost political theoretical conversation.

What is going to move the market is what excites the market.

And if a small credit against taxes produces excitement to the market, it would have a greater impact than the mortgage increase if it doesn't excite the market, then obviously you're right, and the increase in the mortgage amount will have a greater effect.

And I don't have the answer, Tim.

And I'm not running for Congress, and not proposing any laws.

It just occurred to me that what this housing market needs is some kind of jump start, although we may just do it the old fashioned way if left alone there's plenty of us that will survive and we'll just slog through the mud and the mire until we come out the other side.

We've done it four times before, so either way, we'll get back.

Could I ask you a quick other one?

Sure, go ahead.

Really quick to Joel, how in the world did you stop percentage of completion accounting with your auditors?

I applaud you tremendously, but how did you do it?

I insisted on it, but go ahead, Joel.

How did you get the accountants to do that?

The FASB basically reinterpreted previous announcements and pronouncements such that the rules made it more restrictive to use percentage of completion, and because of that, most jobs today don't qualify.

Over my 40 years, I've hated percentage of completion all 40 years.

Lastly, you just said --

That was lastly.

Oh, I'm sorry.

Okay.

I just wanted to ask about Naples.

If you heard what I said --

Yes, but you said the last time -- two subdivisions -- I live two subdivisions from one of your subdivisions in Naples.

Then you're almost there, Tim.

I'm delighted to hear what you said.

You said last time something that you got 24 units maybe that you sold under the market.

Has something different happened this time?

Yes something, different has happened.

The markets gotten real decent again, which is astounding because that was among the worst markets in the whole United States.

You couldn't, as I said in the monologue, you couldn't give a home away in Naples.

And people are buying them again.

But I don't have anything to add to that.

Well, thank you so much for that.

Don't thank me.

The luck of the drawer.

Don salmon pointed out that bank liquidity is being helped, or will be helped by the rise in the cap on the Fannie and Freddie because now basics will be able to get rid of some inventory that they're stuck with.

That's what I was getting at.

You're right.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Scott [Kavana] with Merrill Lynch.

My question has been previously answered.

Thank you.

Good, thank you.

Best question of all.

Pasha?

At this time there are no further questions.

You have a question on a blackberry?

I draw the line at the e-mail.

Thank you very much, Pasha.

And thank you everybody for listening in.

Good day.

This concludes today's conference call.

You may now disconnect.