托爾兄弟 (TOL) 2009 Q1 法說會逐字稿

Good afternoon.

I will be your conference Operator today.

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

All lines have been placed on mute to prevent any background noise.

After the speakers remarks there will be a question and answer session.

(Operator Instructions) Thank you.

Mr.

Toll, you may begin your conference.

Thanks.

Welcome everybody and thank you for joining us.

With me today are Joel Rassman, Chief Financial Officer; Marty Connor, Assistant CFO; Fred Cooper, Senior VP of Finance and Investor Relations; Joe Sicree, Chief Accounting Officer; Karen McCaren, Chief Marketing Officer; Don Salmon, President of TBI Mortgage Company; and Greg Ziegler, Vice President of Finance who really keeps us all straight.

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

I'd 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 do our best to answer as many as we can.

Today we reported fiscal year '09 first quarter results.

We had a net loss of $88.9 million or $0.55 per share diluted which included pre-tax writedowns totaling $156.6 million.

This compared to fiscal year '08's first quarter net loss of $96 million or $0.61 per share diluted which included pre-tax writedowns totaling $245.5 million.

Excluding writedowns, Fiscal Year '09's First Quarter earnings were $9.6 million.

$9.55 million of which resulted from the net reversal of a prior tax provision or $0.06 per share diluted.

This compared to $57.3 million diluted or $0.35 per share diluted for Fiscal Year '08's First Quarter.

In Fiscal Year '09's First Quarter, revenues were $409 million, backlog was $1.04 billion and net after cancellations signed contracts were $127.8 million.

These totals represent a decline of 51%, 56% and 66% respectively in dollars and 45%, 51%, and 59% respectively in units compared to Fiscal Year '08's First Quarter results.

We ended Fiscal Year '09's First Quarter with $1.53 billion in cash compared to $956.6 million at Fiscal Year '08's First Quarter end.

Our cash position was down slightly from the $1.63 billion at Fiscal Year '08's Fourth Quarter end principally due to the payment in '09's First Quarter of previously accrued taxes and the retirement of purchase money mortgages and other debt.

In addition, we had $1.32 billion available under our bank credit facility which matures in March 2011.

We ended 2009's First Quarter with a net debt-to-capital ratio of 14.5%, our lowest First Quarter end level.

This compared to 26.8% at 2008's First Quarter end.

Stockholders equity at Fiscal Year '09's First Quarter end of $3.16 billion was down 2% compared to $3.24 billion at Fiscal Year end '08 and 7% compared to $3.41 billion at Fiscal Year '08's First Quarter end.

Faced with a plunging stock market, weak consumer confidence, growing job losses, challenging credit markets and a hobbled economy we continue to focus on maintaining a strong balance sheet and significant liquidity.

With this capital we hope to take advantage of opportunities we believe will arise from the current downturn.

We're beginning to see some properties come to market at reasonable prices.

We have not bought any yet but we are getting closer.

Ironically, now is a very good time to buy a home, with the decline in home prices and historically low mortgage rates, home price affordability is at an all-time high.

According to the National Association of Realtors.

As a result in many markets, inventory is starting to be absorbed by bargain hunters.

We believe there are buyers on the fence.

Our recent 3.99% mortgage promotion had a dramatic effect on our website activity.

Visitors to our mortgage Company website which is www.tbimortgage.com grew from 84 a day to 1617 a day; however we believe weak buyer confidence still impedes the market.

We have not yet seen a pick up in activity in our communities other than the ordinary seasonal increases for this time of the year.

Now to do the numbers, Joel?

Thank you, Bob.

First Quarter homebuilding cost of sales before interest and writedowns as a percentage of homebuilding revenues were 78.3% which was higher than 2008, Fourth Quarter of 76.6%.

The difference is principally a result of higher incentives, higher overheads per home as a result of fewer deliveries, and some mix issues.

Our First Quarter interest expense in cost of sales was 3.7% of revenues which is 70 basis points higher than 2008's Fourth Quarter principally a result of inventory turning less quickly and less qualifying inventory under construction over which to spread these costs, a trend which is likely to continue.

In addition since qualifying inventory for purposes of capitalizing interest is now lower than debt, we have $800,000 of interest expense which is also included in G&A for the first time.

First Quarter pre-tax writedowns were $156.6 million which included $143.3 million attributable to communities or land owned, $6 million attributable to joint ventures, and $3.7 million attributable to options as we continue to reevaluate, renegotiate and in other ways reduce option costs.

First Quarter SG&A excluding the $800,000 interest charge previously discussed decreased 12% in absolute dollars to $85 million, approximately 20.8% of revenues compared to the $96.8 million approximately 13.9% of revenues in the Fourth Quarter of '08, and decreased 29.9% in absolute dollars from the $121.3 million, approximately 14.4% of revenues in the First Quarter of '08.

First Quarter other income of $11.3 million included approximately $6 million of retained deposits and $4 million of interest income.

The effective tax benefit rate was approximately 43.2% for the First Quarter.

The First Quarter benefited from the expiration of the statute of limitations on some previous tax provisions.

When income or loss in the quarter is small, small changes in state allocations or small changes in the estimated ordered settlements or in the exploration of statute of limitations of previously accrued taxes can have a disproportionate effect on the effective tax rates.

The average number of shares used to calculate loss per share was 160.7 million for the three months.

The creation of projections is difficult at any time.

In the current climate it is particularly difficult to provide guidance given the numerous uncertainties related to the entire economy, employment, and to items such as sales prices, sales paces, mortgage markets, cancellations, consumer confidence and the potential for future impairments.

As a result, we will continue not providing full guidance; however, subject to our caveats outlined here and those contained in our statement of forward-looking information included in the release and in our other public filings, we offer the following guidance.

We currently estimate that we will deliver between 2000 and 3000 homes in fiscal 2009.

We currently estimate that the average delivered price for the year will be between 600,000 and $625,000 per home.

For those of you who model quarterly, we expect that the average delivered price for the Second Quarter will be higher than the mid point of the range and the average prices will decrease sequentially in the third and Fourth Quarters.

We still believe that primarily due to continuing incentives and slower sales per community, our cost of sales as a percentage of revenues before taking into account writedowns will be higher in fiscal 2009 than it was in 2008.

Additionally, we believe based on fiscal 2009's lower projected revenues our SG&A without interest although expected to be lower in absolute dollars in fiscal 2009 versus 2008 will be higher as a percentage of revenues.

We also expect that we will have increasing interest expense included in SG&A in each of the next three quarters.

At this point, I'll turn it back to Bob.

Thanks, Joel.

Many experts continue to believe we must first stop home price declines before we can resolve the nations economic and financial crisis.

The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed.

We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first time buyers.

We must motivate the entire food chain of home buyers to stop the decline of home prices.

Creating a sense of urgency is necessary to motivate buyers to act now; therefore, the credit should only be available for a limited period of time.

As home prices are stabilized, financial institutions which today cannot value the mortgage backed securities on their balance sheets, we'll once again be able to trade these securities.

This in turn will help stabilize the financial system.

Housing starts are at their lowest level since measurement began 50 years ago, and the resulting job losses have been brutally damaging to the U.S.

economy.

The new home industry combined with the related services, building products, and home furnishing industries are together perhaps the largest employer in the United States.

If Congress and the administration can effectively call the bottom, and thereby put a floor under home prices, we believe the housing market will recover sooner, jobs will be created, bank balance sheets will improve, and millions of people will be able to return to the workforce.

Right now, the consumer is under the lock, in a foxhole, scared about their jobs and with good reason.

If we can motivate the buyer for a short period with an incentive, we can perhaps halt the deflationary spiral we find ourselves in.

The $15,000 tax credit is a direct way to do it.

It doesn't require a large bureaucracy or complex implementation.

It goes directly to those we want to motivate, to create demand which should stabilize prices by reducing inventories and freeing up the logjam in the home sale market.

This generates purchases such as furniture, flooring, paint, drapery and thousands of other items and for those who can now sell their existing homes and want to buy new ones, creates construction and other jobs that go into that part of the market.

Also, if home prices stabilize and the economy stabilizes, we may not need to keep putting billions and billions of dollars into financial institutions.

It's been a tough February.

The Dow had its worst February since 1933.

Today we see automobiles were down 40% plus in sales and we hope that Congress and the President can help straighten this out.

If not we'll do it the old fashioned way.

We'll just muddle through.

I have the first question e-mailed to me by Evan Fox.

Evan says hi, Bob.

What is the primary reason you have been given by any government official as to why the $15,000 tax credit you seek has not been approved.

And Evan, I think that was written about in newspapers many times over, a compromise needed to be reached and Democrats and Republicans, actually just three of the Republicans had a hard time getting together and finally it was agreed that we would have a stimulus package passed but what had to go was the dollar amount of that stimulus package downward and in order to get it downward, the Congress gave up the 15,000 and instead adopted an 8,000 for first time buyers only which I don't think will work but I certainly hope does work, and I do think it was more important to get a stimulus package cooking than it was to hold out for the 15,000 and let us just sit there stewing.

Evan writes further, most government efforts regarding housing, I think it's governmental, are focused on foreclosed properties in keeping people in their homes.

Well, this is obviously important.

Why do you feel the government has not taken more action to stimulate underlying demand by interest rates or tax initiatives.

The answer, Evan, is I don't know.

I've had many discussions with quite a few senators and members of the house of representatives and I still don't know.

It seems to me that there is a consensus among those that I've talk to to recognize that housing is the root cause of a problem how we got into this fix along with the credit markets and housing probably is the easiest way out of the fix and most of the legislators that I talk to believe in this.

I hope to speak to people in the administration in the next week that have an opportunity to put forth the $15,000 tax credit among other credits and get us moving again.

We'll see what come out of those conversations.

Once there is price stability in the market, Evan writes, and housing does begin to rebound, assuming there are no further bankruptcies by public builders, thank you very much, Ev, do you expect consolidation in the industry to take place as builders prepare for the next cycle?

And the simple answer to that is yes, I do.

(Operator Instructions) Your first question is from David Goldberg with UBS.

Thanks, good morning, afternoon actually I should say.

Good afternoon, David.

First question, Bob, is about the proposal in Obama's budget to limit the deductability of the interest portion of mortgage payments and what you think that means for Toll's buyers?

As soon as it was announced we got the pencils out, we cranked some numbers.

Surprisingly enough, and I haven't got the numbers in front of me, but there's slight differential.

It's not as bad as it sounded, at first cutting it off at 28%, by the way charitable went the same way as I recall, seemed like it was going to mean quite a bit but when we put pencil to the paper it didn't amount to much and we don't think it will have much of effect on the sale of homes if in fact it passes.

Great, and then I would take that to mean psychologically too that's not going to be a problem?

I mean I understand pencil and paper and the actual numbers but psychologically you don't think it's an issue?

Psychologically I think it's a larger issue and we'll have to do some explaining in order to get over that.

I think one would come into the model the sample area, discuss it with the sales person and say why should I, and I think we have to take the opportunity given to us in the sales office to explain why the differential is not that meaningful on a numbers basis.

But you are right.

There will be a psychological impediment that we have to overcome.

It may not pass, especially since charitable deductions are tied to it, we may overcome yet.

Great, and then the follow-up question, Bob, I was hoping you would give more detail, you mentioned in the release this morning that the landmark you're starting to see opportunities and I guess I was just wondering what it is that's going to cause Toll to go out and pull the trigger, what is it that's stopping you and what you'd have to see to start going out and acquiring lots that you thought A, maybe you could deliver on quickly or you thought you were getting great deals?

Well, I think that we just need to be convinced that foregoing some liquidity and cash on hand is better than not buying, so we balance it very closely with an eye toward the balance sheet and want to make sure that it's an absolute screaming bargain, that it's shovel-ready, that we can get homes to the market quickly, that we don't have to improve the property, of course, and that it will be perceived by even the most cautious and conservative to have been a good buy.

The last thing we want to do is buy something that just slumps along and sells one a month and doesn't put the money back on our balance sheet in fast order.

But just to clarify you are seeing those opportunities at those right prices?

We saw a couple and we had bid numbers in for these properties in this competition and we lost the couple to others.

The others were not public builders but they were investors who thought that it was worth more than we did.

Great.

Thank you.

And I hope they're right.

Great.

Thank you.

Thank you.

Your next question is from Ken Zener with Macquarie Capital.

Just wanted to get some flavor on the margin decline that you guys had quarter to quarter.

Could you kind of talk about the balance between specs mix, incentives and how did that kind of the margin that you guys ended up reporting shipped versus your expectation throughout the quarter?

Joel?

It's about 130, about 1/3 from incentives, about 1/3, a little bit more than 1/3 from overheads and a little bit from mix if that helps you.

Yes, it does.

Were you guys kind of expecting that or did that really roll away from you as the quarter progressed?

The only part that changed a little bit was the mix because we had a little bit more cancellations than we would have expected.

So you had a pretty good sense and you obviously talked about the sense going forward.

Were there anything that kind of changed that made you less optimistic relative to the delta or the run rate that we're seeing right now, or is it kind of just a one-time step that we saw in that Fourth Quarter?

No.

I think that we've talked about incentives going up and those incentives going up have a negative impact on margins and I think we've talked about the fact that as we slow production per community, the overheads per community go up and that has a negative impact on margins and I would expect that negative impact on margins would be with us for a while.

Okay and then I guess just the last question.

You guys talked this last quarter you had spec counts at about 527.

Could you update us, please?

Thank you.

Sure.

Greg?

Traditional communities were at 527 as of October 31.

Today we're at 503.

Thank you.

Thank you, Greg, by way of Joel.

Your next question is from Ivy Zelman with Zelman & Associates.

Hi, Bob, it's Dennis McGill on for Ivy again.

Hi, Dennis.

Just had a quick question, on your comments on the tax credit what would be the avenue to get a larger tax credit through now that the stimulus package is signed?

I don't think it's too difficult.

Somebody throws it in the hopper, I have somebody in mind but won't mention that somebody, gets a couple compatriots to go along with him, you get some help from the other side of the aisle so that it's a little bit of a joint effort, you pass the Bill, send it over to the other chamber, they pass it and the President signs it.

Sounds easy doesn't it?

Real easy but I guess if there was broad support for it given that it was in the initial package, it would seem surprising that would be able to get pushed through on a standalone basis but I guess your conversations with people would imply it's something that could be back on the table?

I believe it will be, yes.

Okay.

And then just kind of I guess a little bit related, can you talk about what you're seeing in the D.C.

area and traffic wise if that's different from what you talked about nationally with some of the turnover there?

We see more interest in D.C.

market both Maryland and Virginia, more traffic, more deposits, but it's more of a churn in that we see, I guess we're up almost 50, 60% in initial deposits but we are up 50, 60% in cancellations.

Now I'm not talking about cancellations of agreements.

I'm talking about cancellations of initial deposits, so we have a good turn out.

We have a bunch of people signed up, give us $1000, up to $5,000 depending upon the community for the initial deposit, go home, talk about it, come back and ask for the money back.

So we see more activity but we also see higher cancellations.

And that activity you're talking about, is that on a year-over-year basis?

It is not on a year-over-year basis.

It's on a week over week basis.

Okay.

Thanks a lot.

Year-over-year, I don't think we're doing so well.

This year is obviously not as good as last year and last year was not as good as the year before and so on and so forth back to 2005.

Thank you.

Your next question is from Dan Oppenheim with Credit Suisse.

Thanks very much.

Wondering you've talked a lot about that tax credit in terms of $15,000.

Given the importance that you think it would have for home buyers, have you thought about doing a promotion for Toll Brothers that you could lower prices by $15,000, attract the buyers that you'd have that advantage relative to the other builders right now?

Yes.

That's a good question.

The reality is, of course that I don't think there's a home builder alive that isn't willing to give a $15,000 incentive out of the current program.

I think incentives generally run on average a lot more and this would be simply giving this kind of incentive through a tax credit instead of dollars to be spent on options, et cetera.

Those dollars being fungible, it wouldn't make much of a difference.

The reason that we fight for an incentive from the government as opposed from ourselves is that if it's introduced with some sincerity and fanfare by the administration and by the Congress, should we get lucky enough to have Obama stand on a platform together with a couple of Senators and a couple of Congressmen and say "We believe this is what's right"?

What you have is the government calling the bond and this has an opportunity to spur demand from those who are sitting on the fence who are scared, logically so to go out and make the plunge to come back home and tell the friends and family that they've bought a new home and suffer their looks as exist now to some extent as to why would you do a thing like that?

Everybody knows it's continuing to go down, everybody that writes about the market says we're in for nine more months of spiraling downward home prices and then we'll have the bottom.

The problem is those nine months have been spoken about for the last three years.

So the difference or the impact is not in the money per se.

It's in the bottom being called, because if it's a short-term and I believe it should be, let's say for six months, you have six months to contract.

If you don't contract in six months, you lose your credit.

So with some urgency being created by the administration and Congress calling the bottom as it were, you have an opportunity to break the logjam of the deflationary thought process that I think grips the consumer right now and I think it's obvious, when you read about 40% plus down car sales.

It's obvious that the consumer is in a foxhole and we're trying to get them out.

I understand that and I guess I have one follow-up, just wondering if it's not so much about the money, want to think that the $8,000 tax credit that has gone through should be enough in terms of not so much calling them but basically you're talking about declaring the bottom, but then I guess the other second question is just wondering about land, if there are any areas in terms of where you would be looking for land at this point and as you see the opportunities out there?

We're opportunistic.

We like Florida, we like California, we like the Northeast and Mid Atlantic states, we like Texas.

So it's quite a bit of territory, where we're looking for land right now.

To offer a retort to your comment about the $8,000, the $8,000 was done as a compromise.

It didn't seem as though anybody was proud of it, and worst of all, it was only for first time home buyers.

First time home buyer buys from a home buyer for the most part.

I think new home sales last month were reported at 300,000 units and that didn't take into consideration cancellations.

The average on cancellations is something like 30% so you're almost down to 200, you're almost blown away, so you're almost down to 200, you're almost blown away, so where was I guys?

I lost my trend of thought on the 300,000.

Motivate the whole food chain.

Yes, if you don't motivate the whole food chain, because the guy you're buying from now has to get a home, but he's minus 15, he doesn't get the 15 because he owned a home so that's why I don't think the $8,000 worked.

Thank you.

Your next question is from Megan McGrath with Barclays Capital.

Hi, thanks.

I was wondering if you could give us some clarity on your comments around traffic and in particular when you talk about comparing it to normal seasonal activity what exactly is normal?

Is that last year?

Is that long term historical and I guess my question is is it looking like we're actually going to have a Spring selling season this year or is it trending more like it was last year?

The unhappy short answer is that the Spring selling season traditionally begins around the last week in January, has much to do with football and probably is over by, traditionally is over by passover or Easter, so you basically have one more month left of the Spring selling season.

So far, that Spring selling season has not come out of its hole and seen its shadow or not seen its shadow.

It has rather seen its shadow and gone back into its hole.

What I was talking to was the seasonality.

You always get an increase of traffic from the, actually just the first weekend after New Years Eve, traffic starts to increase and pretty much runs up, the height of the traffic is generally President's Day weekend which is past and it runs down ever so slightly until passover/Easter and then pretty much banks away.

Okay, thanks, and my quick follow-up is on SG&A costs.

You were pretty close depending on how you define it to being profitable or unprofitable ex-writedowns this quarter.

Does it make you rethink at all how quickly you're bringing down your SG&A expenses?

Do you think you need to do that faster?

Matter of fact we had a discussion about that today.

Sure, it makes you focus, numbers hit you between the eyes.

We've been happy, I wouldn't use the word happy, we've been satisfied with the reduction in overhead that's taken place both in dollars and in headcount but we may have to become unsatisfied and do better.

Thank you.

Thanks.

Your next question is from Carl Reichardt with Wachovia.

It's actually [Adam Rigger] on for Carl.

I had a question on your priority for use of cash.

You've talked a bit on this call so far about land opportunities but I'm wondering why given your guidance for 3000 closings at the high end, it's about 13 years of land is your current supply so why wouldn't you or what are your thoughts on buying back debt versus land right now?

Buying back debt would have to be as good an opportunity.

Buying back debt has a double whammy.

Buys land just as a single whammy as it were and we do look at both and we discuss both.

We talked about that two days ago.

Joel, do you care to comment?

In this time, we think cash is king and having that cash is both protective and an opportunistic asset.

We think it's very important and we have significant availability of cash to do what may be needed to do and it protects us on the downside, so we think it's the right call and when we are ready to buyback debt, you'll see.

But the debt has a double negative.

Well, it reduces cash and it's a positive and it reduces leverage and it reduces the way that counts before and if you buyback at less than par, it increases your earnings and we can, most of the debt in the homebuilding industry is trading at the low par today, so you could do some positive but you couldn't replace that debt in today's market at any significant amounts of money.

Obviously if we're looking at a piece of ground that's around the corner from ground we already have makes no sense but if we're looking at ground in the same market, so we've got the overhead already there, but represents additional opportunity to do business and make money, we think that may be the right call to purchase and so far it hasn't been the right call.

Have you looked at what the interest incurred right now is on land you're not developing and kind of what the effects that is, has on the increase in the future cost basis for the land, if it's land you're not going to buildout for five or six years?

Is that, have you looked at what that would cost and how that would affect the returns for that and in some cases would buying it back in order to reduce that interest help improve your returns?

I couldn't hear the question.

Could you Joel?

Yes, we still buy, try to buy wholesale and where we've had to writedown land we've reduced the cost of that land and yes, from an accounting standpoint when you capitalize interest and you increase the basis which will reduce the future profitability, we think our land is located in good locations to give it away is the wrong answer and when we're buying new ground it's opportunistically at very high returns, current higher returns maybe than the land we currently own would yield us.

Thank you.

You're welcome.

Your next question is from Michael Rehaut with JPMorgan.

Hi, thanks, good afternoon, everyone.

Hi.

First question, just to kind of go back to the comments regarding seasonality that I think Megan referred to and first off, if it's at all possible, I know you don't like to comment intraquarter regarding trends so far but given that we just came off of a near 60% year-over-year decline in orders in the January quarter, I mean, are we looking at a similar type of decline for 2Q as far as you've seen so far in February if you just don't see any type of, anything more than just seasonality?

How should we think about order trends for the next couple quarters here?

Counselor?

Can we answer that?

I wouldn't.

I don't think we're, the quarter is not over.

When the quarter is over we'll report it.

It's been a tough season and I think Bob has responded with the fact that it's still tough and I think that's how we leave it.

Okay.

Counselor Rassman chiming in.

Thank you.

I'm sorry, thank you.

So before I just go on to the second question.

Sure.

Just to understand that, are you surprised at all, Bob, or if anyone else wants to give a view that perhaps the 3.99 mortgage or other recent newer types of incentives didn't create a more positive effect in terms of orders?

No.

I'm not surprised.

We got a significant response.

It wasn't overwhelming but it was significant enough to boost sales.

We think that we paid less for it than the benefit that we received and I think it goes back to the conversation we had about the consumer being under the log, being scared of losing his job, which is a reasonable fear, and the impact that we might see from a calling of the bottom as opposed to one incentive program versus another, and I think until you break the psychology of the deflationary spiral that we're in of everybody sitting on their hands being in the foxhole, until you break that psychology, you're going to have a very tough time moving the market.

Your 401-K comes back to you and shows you what we all know has happened to the indexes in the past three months rolling backward.

That's got to depress you, and there's not a lot of people out there that are immune from 401-K results and from fear of losing jobs that are also in the market for homes or automobiles for that matter.

So I think we've got to break out of the psychology before we see progress.

Thanks for that, Bob.

Just the second question on the comments regarding land that's out there and you said that you had made a couple of bids but didn't get it.

Right.

I was wondering if you could just give an idea of how large those deals were in terms of either lots or?

Sure.

And also geographies and lastly, certainly the bid that you put in penciled for you otherwise you wouldn't have and I was wondering what type of home price assumptions, future assumptions you built in that made the deal work if you were looking for flat or down or whatnot?

Well, the assumptions were simple.

I mean I'll just give you the average instead of taking everybody's time and going through the various opportunities that we're speaking of but on average, let's say you're talking about a $600,000 house and we're buying lots all in improved, tax and code for 50,000, $60,000, which everybody who has been associated with our business knows that's a fairly easy call.

The two states that were involved in the several offerings that we bid on were New Jersey and Florida.

We lost by 5,000, $10,000 a lot.

In all of the instances, we were happy with our bid, happy with our number, thought that it was the right number to go, believe that with those that were purchased will do just fine that they didn't make a bad buy.

They didn't overpay.

They just weren't looking for as much of a slam or home run as we were.

We're happy with ending up without the land and with the cash and we're convinced that sooner rather than later, there will be some winnings for us.

And Bob, just the rough size of the deal?

Oh, sorry.

You had asked that, yes.

They averaged about 100 lots, and there were terms.

Okay, and these are being sold by a private builder or a bank or?

Well, in all cases we're talking to the bank.

Right, okay, thank you.

You're welcome.

Your next question is from Rob Stevenson with Fox-Pitt Kelton.

Good afternoon.

Bob?

When you think about construction costs and materials, how far have they come down in the last six months and how much further do you think you can take them down in this type of environment?

I haven't got that number.

About $2000 a house on average in the last three months and I think the number was a little bit higher in the three months before that.

And I think you've got a lot more to go if the market stays the way it is and we hope the market doesn't.

Okay, and then the second question, the contracts in the North region in the release looks like that they averaged about $272,000 a piece.

What type of assets, what type of houses were those and what type of locations?

I think that's a net number.

I don't think that's a gross number.

We had, if you noted--.

We're in the wrong business if that's the number.

I think you'll notice that we had a number of higher priced cancellations that distorted that number.

Okay.

What was the second part of the question, I'm sorry.

No, I was just looking for $272,000 a home, was trying to figure out what you guys were selling at that type of a price, so thank you.

We're selling about one-half to one-third of the house at that price.

You're welcome.

From the Internet, [Gordon Jones] says, has the California $10,000 new home tax credit had any impact on traffic?

Yes.

Positively.

Or on sales thus far?

No, not on sales thus far.

A little bit, onesey, twoseys, it just came out.

We just got the marketing piece out.

We would expect to see more this weekend.

It definitely should have an impact because it's not just new home, first time home buyer and added to the urgency is that it's good for approximately 10,000 homes and when those are gone, the state created incentive disappears so we think it will have much greater impact than the federal $8,000 first time home buyer tax credit has had so far.

Your next question is from Nishu Sood from Deutsche Bank.

Hello, everyone.

Hi.

Bob, I wanted to ask a question about the opportunities you're looking at out there in terms of the land purchases.

You describe your desired projects as being low risk, short-term, shovel-ready.

I think that's pretty much the consensus view in terms of the people that are out there looking at opportunities either the public builders that have some cash or the distressed opportunity funds, so if everyone is looking at the same type of projects wouldn't that argue that the real opportunities lie elsewhere in the longer term, I guess you could argue higher risk, a larger capital expenditure project?

Well, higher risk, higher reward or busto.

We tend to concentrate in reverse making sure that, as my daddy said we're already rich, the idea is not to get poor.

With respect to all of the usual suspects bidding, we haven't seen that.

In all cases that we bid, we were the only builder.

The other bidders were the speculators, and investors.

Got it.

But remember, they've got to go find a builder.

Right.

What does that argue to?

Does that just argue to there's so many opportunities out there or?

No.

I don't think it argues to there's so many opportunities because there are far from some of the opportunities.

This isn't even close to what came out in '80, '81, '82, and what came out in '89, '90, '91, we're nowhere near that.

Got it.

You've got a strange anomaly cooking here that on the one hand you've got government regulators telling banks that this is, these real estate loans are non-performing, they've got to get them off their books, they got to get them out the door, otherwise they are going to slam the capital and on the other hand you got a guy that walks in after that says I'm here from Talcum Powder, whatever, who wants a billion?

Who wants a billion.

So you've got a double edge message going to financial institutions as to what they've got to do so you don't see land popping out as it ordinarily would, were it not for the depth of the crisis and the willingness of the government to bail the banks.

Right.

And then Joel, you also mentioned in terms of the impact on your balance sheet the difficulty in replacing your current debt or being able to kind of offer any new debt out there so as you're looking at these opportunities for investment, how would you expect to be funding that?

Would that imply an external partner or would you kind of restrict your opportunities to the amount of liquidity you have on hand?

I think both are possible, if we saw a big deal, or an opportunity to acquire large amounts we've had ongoing conversations with a number of money sources who would love to partner with us for those large opportunities and for smaller transactions, we would do that of our own assets.

Got it.

Great.

Thanks a lot guys.

You're very welcome.

Your next question is from Timothy Jones of Wasserman & Associates.

Hi, Bobby.

Hit me with your best shot, Timmy.

Okay we'll give you two of them.

First one, last quarter, you had one sale per subdivision per quarter.

How could you keep going like that, out of no other builder that can survive a one sale per subdivision per month let alone per quarter?

Tim?

We had that same question from some guy who said it was Tim Jones.

Yes, but I'm still -- I still haven't got an answer, can you--?

We'll have to wait and see, won't we?

Well, okay, will you have to lower prices and if that, will it cause a bunch of inventory problems?

I don't think the answer is to lower prices because at a certain point, we may make determinations that it doesn't pay because after you've lowered your prices so that you're just trying to make back your land, then you have to look at what is your land worth?

And if you've determined that your land is worth 100 and by selling at this lower price you're in effect selling your land for 50, it's easy to make the determination that you're better off holding land and shutting down the job or banking down the overhead and maintaining a job for as little as you can while you keep the sales effort alive and you just have to think of whether you want to keep the sales effort alive or not.

Then what you're saying is you're going to utilize your extremely strong balance sheet, to decide if you have to wait it out you'll wait it out?

Exactly.

Okay.

As I recall, you live somewhere near Boca Raton.

No, I live in Naples now, remember?

Oh, now you're in Naples I'm sorry.

So putting it in a Naples kind of equation, take a look at the communities that we have fortuitously, well, maybe it's not fortuitous, but we're just fortunate, all of the Naples projects are working well.

And we're making money.

Matter of fact we've even raised some prices.

Would be kicking myself if we had dropped the prices and given away the product when you couldn't give away a home in Naples last year, a little more than last year, about a year and a half ago, Naples was a ghost town.

Now, it's the best territory in Florida.

So you don't want to write stuff off that doesn't make any common sense.

You have a project that's 200-yards from me.

Okay the second question for Joel, you said, you put, that you could hopefully do between the maximum of 3000 units this year.

If I just take your delivery for the First Quarter--?

I didn't say the maximum.

I said we expect to do between 2000 and 3000.

Yes, on the 3000, then I know you're in the range, if you had the backlogs, the First Quarter deliveries, the backlogs and the specs you get about 2800 units.

I would think that would be the absolute maximum you could expect?

I have some multi-family specs and some condos that I could sell and some other things I could do that can get me over 3000.

I don't believe that will happen.

Thank you very much.

You're very welcome.

Thank you.

Your next question is from Joel Locker with FBN Securities.

Hi guys.

Wanted to get your thoughts on buying back some of your later dated debt and some of it is trading at $0.80 on the $1.00, and just with your cash balance if that's an option or if you have any amendments restricting you to do that?

We have no amendments restricting us.

It is an option and certainly the last place I'm going to announce our thoughts on that is here and now.

All right, fair enough.

Thanks a lot guys.

You're welcome.

Your next question is from [Garland Buckannon] with Dobson Capital.

Hi, good afternoon.

Hi.

Given your market position as a high end home builder, are you seeing any competition from foreclosures in your market and if so--?

As a dear departed candidate for Vice President once said, you betcha.

Okay, can you give any color on which markets are hitting you hardest on foreclosures?

Vegas comes to mind, California, Arizona, that's about it.

All right.

For outstanding markets for foreclosure that is.

All right, and you gave ballpark figures for expected unit sales and ASPs for those.

Can you do the same thing for margins?

No.

Well, I don't think the answer is no.

We're not going to given the vagaries of all of the things we've talked about currently.

All right, fair enough.

Thank you.

Thank you.

Your next question is from Buck Horn with Raymond James.

Hi, good afternoon, gentlemen.

Wanted to attack a couple of earlier questions from a different angle.

One is on the SG&A front, are there any buckets of say low hanging fruit in the SG&A that you could pull to make a big difference in the run rate you're at in a short period of time?

Yes.

Could you elaborate?

I could fire off senior management, start with me and work down and it would be an easy way to cut some overhead, just have to worry whether that's what we want to do.

Okay.

I guess moving to another question about talking about the land here that you're considering purchasing.

Just thinking about it, is there a risk that if you buy some land in some of your existing markets that you would again bring that land, that would come to the front of the line and you would push back your existing land a little bit further out and push the absorption pace until you sold it out further out in time.

Wouldn't that lead to or risk incurring additional impairment charges?

Well, if it came anywhere close during the analysis to incurring further impairment charges obviously you'd be out of the room, you don't want to look at that any further than having the first thought about incurring additional impairment charges but your analysis is correct that if what you're looking at, let us suppose is so tasty that you say, I've got to make a bid on this, and then you notice that you were, as I said earlier, in the market around the corner, in the same logical neighborhood that people would shop, then if this is such a bargain, then you've got to push your other stuff further out and you're going to incur greater interest charges real or theoretical use of money kind of analysis, and it's just a matter of numbers, I know from where our heads are now, that if we think that we've got to get into that kind of analysis, we're really not interested.

Right now, being super conservative, I guess out of fear that we have no idea how long this down market is going to last and we have no understanding as to whether we're headed for inflation in which case we will be buying more land or deflation in which case that is the only thing that makes sense, puts us in a spot where as I said earlier, we're only jumping if it's super obvious.

Thank you.

Your next question is from Jim Wilson with JMP Securities.

Good morning or afternoon, Bob.

I think most of my questions have been answered but I just want to follow-up on the land issue, if you could give even more color it would be great as to where are you seeing opportunities geographically pop-up, if there is any concentration or part of the country that seems to be willing to start moving land faster and then--?

Excuse me?

I gave that and that was with specific deals, I would just add California to it.

Okay.

Now that doesn't mean that don't see stuff in Phoenix or Vegas.

If you want to buy land, I can get you all you want in Phoenix or Vegas within the next 24 hours but those markets have been so heavily hit, we really aren't entertaining even if a guy came here for a nickel a lot.

Right now those markets are not where we want to go but California makes sense and we are looking at California, in addition to Florida, Northeast, Mid Atlantic states as I mentioned earlier.

All right, and then I guess maybe the follow-up to that is coming out of the banks are these, the banks now finally being willing to entertain offers at all or were they trying to move the product at higher prices earlier and now just getting more realistic about what they can realize on selling land?

Both.

Getting more realistic and then just finally deciding to move the product.

We've run into both kinds of scenarios.

Okay.

Very good.

Thanks.

Welcome.

Your final question is from [Paul Christofsky] with Tower Capital.

Good afternoon.

I was won'terring if you might be able to add a little bit more color on the use of cash in the quarter and then also either on a quarterly or an annual basis what your mandatory cash spend is for taxes and maintenance, et cetera?

They all change so going forward I don't think we're going to respond on what our interest numbers is a disclosed number so it's in the Q's and K's you can see what it is but the taxes and stuff is not a disclosed number and I'm not going to be forecasting what it is because it changes from time to time.

The use of cash, primarily the decrease in cash in the quarter was attributed to two major items which was the payment of some previously accrued taxes and the reassignment of some debt which was due during the period and we disclose the debt as we expect it to be paid in the 10-K, there is a footnote on it and if you go back to the 10-K which was only recently filed you get an idea of what else we expect to be retired this year in terms of debt.

Okay, thank you.

There's nobody else?

We do have a question from [Stuart Frior] with Hannah Global.

Okay.

Stuart?

A question for Joel.

I'm just trying to understand the impairments.

It seems like absorption continues to slow and possibly get worse and pricing continues to decline, so why are the impairments not getting worse as we kind of move along?

Well, you build, we don't always use current absorptions.

We may in fact build in slower absorptions than we currently had.

We may build in different prices than we currently see into the absorption numbers, we generally build in periods of time before economies change and so you would hope that once you set an impairment you don't have to go back too often to adjust that impairment although it does happen.

But we have seen a significant change in velocity of sales that took place after I guess it was mid September/October when Lehman went under and that has continued and that took a number of communities that were not requiring an impairment based on previous cases to the point where they now require, they end up with negative cash flow and that requires us to present value everything, and so you continue to have that effect that takes place which is why the number was even as big as it was.

So do you feel like the absorption rate that's being assumed in the communities today essentially reflects this pace post-Lehman Brothers?

We hope so.

We look at current absorptions when we do the analysis.

We are constantly updating it and obviously, we use assumptions as to when markets turn and, in that evaluation but we hope that we are using as best information we have available to us with those calculations.

Is that analysis any different at quarter end versus year-end?

No.

Same process is done every single quarter.

There is no difference for us.

Okay, thank you.

You're welcome.

There are no further questions at this time.

Do you have any closing remarks?

Yes, I do, thank you, everybody.

Thank you.

Have a good day, Bye.

This concludes today's conference call.

You may now disconnect.