托爾兄弟 (TOL) 2009 Q4 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 fourth 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) We ask that you please limit your questions to one and reenter the queue with any follow-up questions.

Thank you, Mr.

Toll, you may begin your conference.

Thank you.

Welcome and thank you for joining us.

With me today are Joel Rassman, Chief Financial Officer, Doug Yearley, Executive Vice President, Marty Connor, Assistant CFO, Fred Cooper, Senior Vice President of Finance and Investor Relations, Joe Sicree, Chief Accounting Officer, Kira McCarron, Chief Marketing Officer, Mike Schneider, Chief Planning Officer, Don Salmon, President of TBI Mortgage Co., and Craig Zigler, Vice President of Finance who really supports all of the above people with the answers.

Before I begin I'll ask you to read a 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, financial markets and many other factors beyond our control and knowledge that could significantly affect future results.

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

As I mentioned on our November 11, preliminary results call, please note starting in fiscal year 2010, we are getting out of the pre-release business and will do just one investor conference call each quarter which will be our quarterly earnings call.

Today we reported results for our fourth quarter ended October 31, 2009.

Since our detailed release has been out since early this morning and is posted on our website, I will just hit certain highlights.

In fiscal year '09's fourth quarter we reported a net loss of $111.4 million or $0.68 per share diluted.

The loss included $85.5 million of non-cash pre-tax inventory writedowns, a pre-tax charge of $11.6 million due to early retirement of debt, and a $14.6 million non-cash expense for deferred tax asset valuation allowances.

Excluding writedowns and charges of early retirement of debt, fiscal year '09 fourth quarter pre-tax loss was $9.6 million.

For the full fiscal year 2009, we reported a net loss of $755.8 million or $4.68 per share diluted which was impacted by non-cash pre-tax inventory and other writedowns totaling $476.7 million, a pre-tax charge of $13.7 million related to the early retirement of debt, and a $458.3 million non-cash expense for deferred tax asset valuation allowances.

Excluding inventory and other writedowns and charges for early retirement of debt, fiscal year '09's full year pre-tax loss was $6.1 million.

We ended fiscal year '09 with a net debt-to-cap ratio of 7.4%, our lowest ever, compared to 12.6% at fiscal year end '08.

At fiscal year end '09, we had $1.91 billion of cash and marketable US Treasuries compared to $1.63 billion at fiscal year end '08.

At fiscal year end '09, we had $1.38 billion available under our $1.89 billion 30 bank credit facility which matures in March 2011.

Our fiscal year '09's fourth quarter net signed contracts of 765 units and $430.8 million rose 42% in units and 62% in dollars compared to fiscal year '08.

Fiscal year '09's fourth quarter totals also exceeded fiscal year '07's fourth quarter net signed contracts by 17% in units and 18% in dollars.

These increases were achieved despite having fewer selling communities.

During fiscal year '09's fourth quarter we averaged 215 selling communities down 26% from 290 in fiscal year '08's fourth quarter and down 32% from 315 communities, our fourth quarter peak in fiscal year '07.

Fiscal year '09's average fourth quarter net signed contracts of 3.56 units per community exceeded fiscal year '08's fourth quarter average of 1.86 units per community by 91%.

They also exceeded fiscal year '07's fourth quarter average of 2.08 units per community by 71%.

Fiscal year '09's average was also 4% above fiscal year '06's fourth quarter average of 3.42 units per community but still well below our 20 year fourth quarter average of 6.16 units per community.

Fiscal year '09's fourth quarter homebuilding deliveries, and revenues of 860 units and $486.6 million declined 20% in units and 30% in dollars.

Our fourth quarter end backlog of 1531 units and $874.8 million declined 25% in units and 34% in dollars compared to fiscal year '08's fourth quarter.

For the full fiscal year '09, net signed contracts of 2,450 units and $1.3 billion declined 16% and 19% respectively compared to fiscal year '08.

Our fiscal year '09 homebuilding deliveries, and revenues of 2,965 units and $1.76 billion declined 37% in units and 44% in dollars compared to fiscal year '08.

We are entering the fifth year of this severe housing recession.

Last year at this time, Lehman Brothers had recently collapsed paralyzing the financial markets.

Now, one year later, after massive government intervention, the debate about whether the economy and the housing industry seems no longer to be focused on whether we have seen the bottom but rather when and how quickly the economy and the housing market will recover.

On declining cancellation rate and improved pace of contract signings provides some signs of recovery.

From elevated levels ranging from 18% to 39% over the prior 12 quarters, our cancellation rate has improved dramatically to 8.5% in our third quarter and to 6.9%, our historical average in our fourth quarter.

We are also encouraged by the improved pace of net contracts signed per community this fourth quarter which although well below our historical averages exceeded fourth quarter paces dating back to fiscal year '06.

A number of factors continue to weigh on the housing market.

The nations unemployment rate in October reached 10.2%, the highest in 26 years.

Although the rate for college graduates, our primary demographic, was in a much lower 4.7%, having declined from the previous month.

That number, however, is still highly elevated.

Recent news reports indicate that one in four Americans have mortgages that exceed the value of their homes which certainly restricts their ability to sell and move to another home.

On the other hand, affordability hovers near an all-time high.

Mortgage rates are near historic lows and home prices, although down to 2003 levels, have improved sequentially over the past two quarters according to the most recent Standard & Poor's Case Shiller home price index.

And although the volume of home sales continues to be near record lows, inventories of unsold homes are declining nationally.

The choppiness in demand that began after Labor Day following a stronger period from late March through late August has continued.

Since the holiday season is not typically the time to be purchasing or selling homes, we suspect the housing market may be following seasonal buying patterns.

We believe it may take some time for Americans to regain confidence in our economy, their job status and the benefits of home ownership.

Currently, we anticipate a gradual recovery in housing, similar to the one that occurred over several years coming out of the last recession in the early '90s.

Now, to do further numbers, Joel?

Thank you, Bob.

Fourth quarter homebuilding cost of sales before interest and writedowns as a percentage of homebuilding revenues was 81.6% compared to 76.6% in 2008 fourth quarter.

The differences are principally a result of higher incentives in the sale of more quick delivery homes in the fourth quarter of 2009.

This compares to 82% cost of sales in the third quarter of 2009.

Fourth quarter interest expense including cost of sales was 4.8% of revenues, about 30 basis points lower than 2009's third quarter numbers.

The fourth quarter pre-tax writedowns of approximately $85.5 million included $81.3 million attributable to land and operating communities of which approximately 1/3 were attributable to communities in Nevada.

Approximately $4.2 million of writedowns were attributable to options and none were attributable to joint ventures.

Of the writedowns, approximately 2 million of them were attributable to the previously announced dispositions of non-strategic assets.

Including interest -- excluding interest I'm sorry, fourth quarter SG&A at approximately $79.3 million was higher than the $72.1 million in the third quarter of 2009 and down from the $96.8 million in the fourth quarter of 2008.

Included in this fourth quarter, SG&A is approximately $2.6 million attributable to writing off capitalized marketing costs related to the non-strategic assets we sold and approximately another $2.6 million attributable to writing off other capitalized marketing costs in communities where we are changing product.

In the fourth quarter, average qualifying inventory for the purpose of capitalizing interest was again lower than our average debt resulting in the direct expense of about $6.2 million of interest.

In addition, the Company expensed $11.6 million of costs attributable to the early retirement of debt.

Fourth quarter other income and income from joint ventures was approximately $9.8 million including approximately $3.8 million of retained deposits.

We have recently been asked a lot of questions about taxes by analysts and investors.

In the future, if the Company reports income in any period, a portion of the valuation allowances we previously established will reverse which will eliminate some of our tax expense.

Since we currently reserve all new deferred tax assets set up, there is effectively no tax benefit accrued for any losses for book purposes.

In addition, in each quarter, normal provisions for interest penalties and the release of exposures under FIN 48 and other miscellaneous adjustments to previously accrued taxes will occur, our tax expense in the fourth quarter is principally attributable to these items.

On November 6, 2009, the President signed a new law which allows a one-time carryback of losses for five years instead of two years.

For us, we can choose either to use it in 2009 or 2010.

Since we can carry back most of our 2009 losses already, we will probably elect to use it in 2010.

If we choose to use it for 2009, we could probably get another $15 million back.

During 2010, we will attempt to estimate what the benefit will be for the full year.

This estimate will require a reversal of a portion of the previously reserved deferred tax assets triggering income during the year.

The average number of shares -- in earnings per share was approximately $163.1 million for the three months and $161.5 million for the full year.

Recently Standard & Poor's reaffirmed our investment grade corporate rating and upgraded our outlook to stable.

Since April 2009, we've extended the average term of our public debt maturities from 3.5 to 6.1 years and now have no public debt maturing before our fiscal 2013.

We have raised $650 million in long term debt in the public markets and retired $543 million of public debt with shorter term maturities including most recently the remaining $48 million or outstanding senior subordinated notes this last December 1.

Subject to our normal caveats regarding forward-looking statements in today's release and in our SEC filings, we offer the following limited guidance.

We ended 2009 with a backlog of 1531 homes which was 25% lower than 2008 and since it takes us approximately nine months on average to obtain permits and build the home after a contract is signed, we expect that deliveries, in 2010 will be lower than deliveries in 2009.

We currently estimate deliveries for fiscal 2010 between 2000 and 2750 homes.

We estimate the average delivered price per home between 540,000 and $560,000.

We believe that primarily due to incentives, fewer deliveries, and lower average sales prices are cost of sales before interest and writedowns as a percentage of revenues will be higher in fiscal 2010 than in 2009.

Excluding directly expensed interest, we continue to estimate a reduction in absolute dollars expended for SG&A in fiscal 2010 compared to 2009; however since we currently expect lower revenues in 2010 than 2009, we would expect SG&A without interest as a percentage of revenues will be higher in 2010.

Although we are not providing quarterly guidance, we normally deliver fewer homes in the first and second quarters than in the third and fourth quarters.

This will probably continue in 2010.

Further, many of you use backlog conversion ratios to determine closing for the next quarter or two.

I'm not sure if the normal relationship that we've had in the past still applies since we have a higher number of quick delivery homes that we will probably have in the first and second quarter, so using that information you could do your own quarterly estimates.

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

Thanks, Joel.

In the past few months, we've been seeing and competing for a greater number of attractive land acquisition opportunities from financial institutions and other sellers.

With our strong cash position, our record low net debt-to-cap ratio and our demonstrated access to liquidity, we believe we can take advantage of opportunities that arise from the current state of distress in our industry.

As has happened in previous downturns, we believe there will be further consolidation in our industry.

Many of the small and mid size private builders who historically have been our primary competitors in the luxury niche are facing serious capital constraints among other problems and are either hobbled or no longer in business.

The other major public homebuilding companies remain focused primarily on the lower end of the housing market rather than on the luxury niche.

Facing fewer competitors and supported by a strong balance sheet, our diverse product lines, our broad geographic footprint and our brand name reputation for dependability, value, quality and service, we believe we're now well positioned to gain market share as the housing market gradually recovers.

Now, let's open it up for questions.

(Operator Instructions) Your first question comes from the line of Nishu Sood with Deutsche Bank.

Good afternoon, everyone.

Hi, how you doing?

Good, thanks.

Joel, I wanted to ask you about you're talking in terms of the turnover ratios for the first half of 2010 to expect that to be affected by higher percentage of quick move in homes.

I was a little surprised to hear that.

I mean you guys obviously don't do any speck building so your quick move in homes are mostly the results of your cans and you've had obviously two terrific quarters in terms of low cancellations so how much longer are the quick move in homes going to be a big part of your closings?

Well, we have a number of high density mid rise product that's completed or close to being completed so we would think that that would continue at least through the second quarter.

Into the second quarter.

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

Let me just--.

I'm sorry, Joel wants to go further.

I think if you looked at the last five or six years or maybe even the last 10 years of conversion ratios based on our backlog at the end of the year to the first quarter you'd end up with a number of someplace between 335 and 500 and I'm not sure that based on the number of quick delivery homes at 335 at the low end is even reasonable.

I would expect it to be much higher than that on the low end.

Okay?

Your next question comes from the line of Michael Rehaut with Stacey Morgan Company.

Okay, thanks, good afternoon, everyone.

Hi.

First question just on gross margins, you said in the limited guidance that you expected fiscal '10 to be below fiscal '09 and just wondering when you look at the performance near 22% in the first half of '09 and closer to 18% in the back half, looking at that back half number, is it reasonable to think that that is a number that can continue or maybe even slightly rise from here and that the difference on an annual basis is more driven by the first half?

I guess what I'm asking also in another way is the margins in backlog, would you characterize them as similar to what you've put out in the last couple quarters or different?

You're right.

The first two quarters of last year, 2009, had before write-offs of interest had a 74 and 76% cost of sales which is much lower than the last two quarters which were 82% in the third quarter and 81.6 I think in the fourth quarter, and so when you look at the whole year I don't expect to get back to those numbers of 76 and 74% based on what I have in the backlog or what I can sell in the first quarter and still deliver for the year.

We would expect that the effective incentives through the year maybe in the fourth quarter will start to improve because as we indicated in the last conference call, the offered incentives went down a significant amount between the end of the third quarter and the fourth quarter but there's a very big effect of mix and we don't know yet what that mix will be for the fourth quarter so I can't give you that for certain.

Okay.

And similarly, with SG&A, obviously to a good extent being driven by volume and revenue in terms of the leverage there, as a percent of sales though, I'm sorry, in terms of absolute dollars, where would you say you are in the spectrum in terms of being able to adjust to a still lower volume in 2010.

In other words do you think SG&A can go over 20% or are we looking more at sort of the high teens that you've done recently?

This is Bob.

We have room to further constrict G&A.

For the time being, we have stopped lopping headcount and have decided to stick with the organization, the team that we've got until we get through first quarter and a half fiscal or calendar first quarter.

If we see the business pick up substantially, certainly we'll stick with the overhead we've got.

If we continue to see choppy waters in January and February and part of March, well then we'll go back into the business of lessening headcount which will lessen G&A to some extent.

Joel, do you want to add to that?

Yes, I think if you looked at it we at least try to give you an idea that the fourth quarter had a little bit of extra stuff that we wouldn't expect to repeat which is why we gave you the deferred marketing cost write-offs.

That's not a normal thing for us, so when you look at that and then you say that if we took that away maybe that's a more reasonable amount of money per quarter and it's probably true if you look at the prior quarter as well so although we're not giving you that number because we can't, we don't know how much we'll do for advertising and other marketing costs for example, and we don't know what the headcounts will be that gives you a pretty good idea.

Your next question comes from the line of Ken Zener with Macquarie.

Hi, this is Rodney on for Ken.

Hi.

I have a question on your interest on COGS.

As a percent of sales we've noticed the rising--?

I'm sorry, you're breaking up for some reason.

Try it again, but speak slower and perhaps it will overcome the breakup.

Hi, is this better?

Yes, it is.

All right, just a quick question on interest and COGS.

As a percent of sales we've noticed it rising from 350 bips in the first quarter of this year to about 480 bips in this quarter so on a lower sales base in 2010, would you expect your interest in the cost of sales to continue rising?

It's kind of subject to which specific inventory closes and it's kind of unique in that it is effected by how much is capitalized and it's got some delayed tax issues involved so I don't really know how to answer your question other than it went down 30 basis points from the third quarter to the fourth quarter and it will probably fluctuate someplace in those neighborhoods for a while until inventory goes up as we acquire more lots or we open more communities or inventory goes down.

Thank you.

Your next question comes from the line of Joshua Pollard with Goldman Sachs.

Good afternoon, how are you?

Good, Josh.

I have a quick question and a follow-up.

I estimate that you can spend about $1.7 billion on land that would earn solid returns on capital and still be at a 40% net debt-to-capital ratio sort of in line with your longer term average.

When you think about your cash chest today how much of it would you be willing to spend on land and how quickly do you think investors could expect Toll to be delivering let's say 15 or 20% of its homes on newer price land parcels?

Well, I certainly don't envision us using $1.7 billion to go purchase land right away.

That seems just impossible.

It was where we were once upon a time and we did great business but having gotten whacked coming through the last four years, at least until our memory fades and we get greedy again for the next couple of years we don't expect to use all of our cash.

So far, we've seen four or five pretty good offerings of which we've only gotten one and we missed the others so it's not dam the torpedoes full speed ahead, we're very careful of the torpedoes, we want to make sure we don't repeat past orders and overpaying.

How long will it take before we see the profit benefits out of that ground, the ground that we acquire?

depends upon the state of the ground.

The one we bought is ready to go and I would think that we'll probably not market there until February or March.

We want to wait for the best of the seasons to be upon us and then you would start to see profits out of that nine months thereafter to 12 at the outside.

Joel, anything to add?

That's about it, Josh.

I have a question from -- are you with me, Latange?

Yes, sir.

Good.

I have a question from Steve Sullivan.

He asks--Can you talk about recent sequential trends in incentives and the magnitude of the change that you are seeing?

I can do it from memory and approximate but somebody has written an answer down here.

Was that you, Greg, the answer man?

You did, Joel?

Yes.

It's your handwriting?

Yes.

Yes, go ahead.

We talked about the fact that incentives offered had increased and as of the other day when we looked at it, incentives quarter-over-quarter have decreased about $13,000 so on product we expect that will be sold in the next 12 months, that includes estimates for job by job, unit by unit of what we would expect to sell going forward, so that's sequentially.

We had 10,000 year-over-year.

If you looked at a year ago we were roughly the same incentives offered as we were today, incentives increased for the first two quarters and then started to decrease in the third and fourth quarter so we're back to where we were a year ago in terms of incentives being offered.

You say Greg didn't give you that answer?

Latange?

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

Good afternoon, everybody.

Wow, did you hear that, Ivy?

That's a bad connection, I'm sorry.

Please redial in.

Okay, Ivy, would you redial in, please, and maybe we'll lose that echo.

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

Thanks very much.

Hopefully the echo is not as bad now.

Wondering about the counts in terms of the trends in traffic and if you can provide a little color around the sense that thinking about in terms of pricing and incentives, given that this is a slower time of the year for sales, how does this affect your view of the incentives, that is if there isn't the traffic does it make sense to use incentives if it doesn't really bring in more sales that way or how are you looking at that relative to what you would do in January or February in terms of responding to slower traffic at that time?

Well, I think you've got the answers in the question and you would make an excellent CEO of a homebuilding Company.

Thanks very much.

Second question for you, I guess wondering about the -- if we look at the writedowns for the quarter, the $45 million of writedowns on the owned operated communities, I think the operating communities includes not just the active communities for sale but also some of the mothballed communities.

How much of that relates to the open communities versus impairments on mothballed communities?

I think most of it is open communities.

Yes.

I'm not sure.

I thought most of the stuff goes down, it's going to be in there more than a year.

Excuse me guys.

I'm fairly certain that the impairments that we are taking are not on mothball communities because when we mothball the community we would have taken an impairment generally, we wouldn't come back and revisit a mothballed community and say that it is further sinking in value because practically we wouldn't be tipped off to such a thing, but we have not been active in the field and marketing.

We look at them every quarter, Bob, and there are times like for example, in Nevada where there's an issue where the markets going down where we could maybe adjust it but in general I think the $45 million was exactly what you said.

Which was operated communities.

Thanks.

Does that answer it?

Your next question comes from Stephen East with Pali Capital.

Good afternoon guys.

Hi.

Bob, if I can circle around on the cash balance again and maybe ask a little bit different question than what's been asked so far, you've got about $1.9 billion in unlevered that can buy at today's ASPs, I'm calculating something like 11,000 lots.

You've already got 26,000 owned, but interest expense is running about -- total interest expense is about 6% of sales so when I look at this huge cash forward and you can now tap the capital markets whether it's debt or equity, et cetera, does it really make sense to sit on this much cash and given your land base already to save it for a land acquisition or does it make more sense to try to figure out a way to get your profitability up by reducing some of that debt, that interest expense that you have sitting out there?

It's a very good question.

I've thought the same thing and the answer is obviously I'm not sure or I would have done something, but we are thinking about this and your question is a very good one.

Thank you.

Okay, just the second thing I had, Joel, what do you all spend on land and development in 2009 and I know you never have a good hard number for the future year but as you look at, if you can at least talk qualitatively what you think will happen in 2010 versus what happened in '09?

Well, we have three categories.

We have land -- we have soft cost, or pre-development costs suspended and for improvements we spent about a $0.25 billion a little less in 2009 for that.

Combined?

Combined for all three, yes, and if that helps you, I don't know if there's a follow-up to that, but we spent a little less than a $0.25 billion.

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

By the way if Ivy calls back, please move her up.

I don't want her to get any madder than she is.

Certainly.

Thank you.

That's a good intro.

You're welcome.

Look, I wanted to maybe go back and revisit this question of incentives and maybe ask the question in a little bit different way and Joel and Bob, thank you for the details and the timing for the incentives and the reduction in incentives, but what I'm trying to understand is, my understanding and tell me where we might be off but about six months ago or so you guys reduced incentives in about 60% of your communities and that seems to have stuck pretty well in terms of improvements in the market and so Joel, when you talked about and I think the number you gave was $13,000 less incentives year-over-year today, was that kind of a gradual reduction over that time period over the last say six or eight months or was that kind of, we reduced incentives and we haven't done it again.

Well, of course it's a gradual thing.

You don't get up in the morning and say okay, now, the whole Company is going to take all of its communities and reduce incentives by $8,000.

You do this on a week to week basis, on a community to community basis as you review the sales every week.

Does that help?

If I can, that $13,000 number was a quarter-over-quarter, third quarter over fourth quarter so that primarily--

Year-over-year we said was $10,000.

Does that help?

And I guess the question then is when you think about deliveries, as you look forward to fiscal '10, how do you think about the split between homes that have had reduced incentives relative to where we are versus homes that haven't had that level of reduced incentive or maybe they're having slightly more, and maybe it's hard to get clarity but I'm just trying to understand why there's not more margin benefit coming through from that reduction of incentives when you look at the numbers?

Joel?

I think the question was, the answer was in the question that was asked earlier which is we had very high margins in the first and second quarter off of prior sales which when you look at an average for the year, we will not get that back for a while and in deliveries, because if I look at both what's in my backlog and what we expect to sell in the next three months or so that we can deliver by the end of the year, we don't expect to reach those earlier margins of 76 or 74% before taxes.

Doesn't it got to do with the relationship of overhead to volume?

There is a relationship of overhead to volume but we're still doing deliveries at a slower pace.

With no improvement yet.

Right.

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

Bob, thank you so much for making me laugh.

I really enjoy that and I certainly wasn't mad, but to ask a question, I wanted to drill into a comment you made about the choppiness that you saw at the end of the quarter and I was curious if this is due to seasonality or if you're concerned that there's a slowing beyond seasonality and also have you seen a nice bump yet from the tax credit for the move up buyers yet?

I don't think we've seen a tax bump, how about you guys?

No.

No.

You're talking about for the second time move up, I mean for a move up the second time home buyer you're talking about 6500, our average single family home is 7 or 7.25 and the multis are about 450 on average so I don't think we're going to see in our line of work much of an inflection due to the tax credit.

It makes it easier for their buyers.

It does make it easier for their buyers but we haven't really felt it.

With respect to choppy waters, you just have to bite the finger, be patient, and wait until you see what comes out in the latter part of January, all of February and the early part of March.

We can't tell if things are not clear enough now for us to state that it is anything other than seasonality.

We note that other industries are having a little bump up, trucking stats are a little better, retailers are a little better, back and forth especially in the electronics and in the Internet it's gotten a little better, so that might point to better times for us when the focus goes to housing as opposed to the season to be jolly.

We don't have an answer.

I wish we did Ivy but see me at the end of January, February, March, and we'll definitely have an answer by then.

Your next question comes from the line of [Arjan Shamar] with--.

Good afternoon.

Hi.

Just going back to something that you guys were talking about earlier with gross margins just a little clarity on the issue.

You said that you expect gross margins in 2010 to be lower than 2009 on a full year basis?

Yes.

Just a little more clarity on how we should be expecting to see gross margins trend in a quarter to quarter basis in 2010.

Do you think that gross margins will generally trend up from here or is it hard to say?

I can't give you that information.

I don't know yet.

Okay.

Thank you.

We have a question from Dave Crossman, subject liquidity.

How much balance sheet liquidity is enough for you?

Well, we got asked this question didn't we?

Will you at some point consider a share buyback program or dividend?

Yes, we will at some point consider share buyback, dividend is unlikely, or debt buyback and as we said to the previous questioner, right now, obviously we don't know but we are thinking about all of our options.

Latange?

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

On the break down of your owned lots, do you have three buckets of finished lots, partially developed and completely raw?

Joe.?

The finished lots were 10,800.

Finished are 10,800, so the rest are in various states Greg who generally knows.

Thank you, Greg, and thank you.

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

Hi, thanks.

Wanted to drill down a little bit on your ASP guidance for the year.

What's all the drilling by the way?

We like to drill.

Do girls like to drill?

Ivy is drilling, you're drilling.

Construction, I'm trying to say--?

I thought we were in the energy business.

Your guidance for the full year is lower than you've came in for the average in the fourth quarter, so just curious is that because you are expecting to lower base prices as the year progresses or are they lowering your backlog or it's more of a mix issue against that number?

We have to keep reminding everyone that about three years ago we started talking about a change in mix to more multis and more active add-ons which are lower priced homes.

That mix change will continue at least through 2010 is our guess so what you're seeing is the effect of that mix change primarily and some difference in incentives.

Got you, and then a quick follow-up just for modeling purposes on the taxes.

When you talked about a potential reversal of your valuation allowance, is it a fair interpretation to say that at minimum, you will reverse $50 billion and that could be higher if you intend to use it in 2010?

Well, at a minimum, I would reverse, I would pick up $15 million of income because that's about what I estimate that I have in excess losses in '09 that I can't carry back, to that would be 15 -- 1-5 would be the minimum if I believe as I get through the year that it's likely that my taxable loss because remember for tax purposes I don't get the benefit of writedowns whereas the books I do, that my taxable loss will be higher than that, then I would end up using it in 2010 and that should be a number higher than $15 million or I would have used it in 2009 so the answer is 15 is my minimum and I would guess it's a higher number than that.

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

Hi guys how are you?

Good, thanks, how are you?

Great, thanks.

Good.

My first question was do you have a better break down of the inventory between like work in progress meaning just homes versus land, the 3.2 billion that you guys show there?

Do we have that yet?

Not yet.

We will be issuing our 10K in a couple weeks and you'll have all of that data in the 10K.

Okay, great.

My second question was more having to do with I think in the preview call a couple weeks ago you guys mentioned you had several communities that had never been opened and I'm just trying to get a sense for the impairments on those parcels of land and the mothballed communities versus the ones that are currently open, so I guess it's kind of a two part question.

Are you more likely to sell that land to maximize the deferred tax asset and can you give us a sense of how much that land has been impaired since it never even opened?

The answer to both of those questions is I don't know.

We will obviously look at it if the market continues to improve, I don't think we would like massive amounts of land sales because we would be then able to open communities that we have previously closed.

If the market doesn't then we may look to sell some of those assets to get cash in the coffers but right now it's too early for us to make any decision on whether we have excess land or not having excess land to do that and we -- obviously there's a bid/ask spread difference if you have to sell land and there are no buyers it depends where the land is and if you looked at where we were on write-offs we picked up $2 million of losses on the land bit what we had previously written it down to, but we had previously written it down to what we thought the bid was in those cases which is not necessarily a going concern base value because if you build it out, you probably would make more than that so I can't answer your questions.

But it took a while.

I wanted to give him the understanding of why.

Just kidding you.

The next question comes from the line of Bose George with KBW.

Yes, hello this is [Jade Romani] on for Bose George from KBW.

Just a quick clarification, your comments mention $50 million of estimated carry forward tax losses.

Is this in addition to the $162 million income tax receivable on your balance sheet?

Yes, what happened is we triggered a lot of tax losses through the normal operations of the Company and through the land sales which generated $161.8 billion of an expected refund in 2010.

In addition based on our current estimate we believe that when we file a tax return which will be done some time in 2010, for 2009, we will have excess losses that we will carry forward of $50 million, if you use a 35% tax rate roughly that gets you the $15 million we said that we could receive back from the government when we choose to carry it back five years instead of two.

We do have a follow-up question from Nishu Sood with Deutsche Bank.

Thanks, I wanted to ask about cycle times.

When we're talking about what we should expect 2010 you mentioned the average cycle time of nine months so clearly we've gotten back some of the cycle times have come down because of kind of less bottlenecks in the labor supply, but that kind of sounds like it's roughly in line with your historic average.

Now if we contrast that with the lower end builders they've obviously been squeezing their cycle times less and less and simplified products and stuff so I wanted to understand the cycle times reducing the cycle times how much of a focus is that for you folks or is it something that because of the more customized nature of your product just isn't an area that would benefit from greater focus?

Pretty much the latter, to stay in the business that we're in serving the clients as we have in the past, you can't reduce the cycle time much below where we are.

We spend a good bit of the time after contract with the client before we begin the home outlining the foundation changes, the add-ons, the special requests, and once we have that settled, then we have to go for a permit.

Because it's not production, repetitive product coming off the line every permit we go for is a major deal to most townships and counties.

Our average time today for permits is probably two and a half months so there's not a lot of room for reducing cycle time in the true luxury niche business, thank you.

Latange?

Your next follow-up question comes from the line of Joshua Pollard with Goldman Sachs.

Hi again, Josh.

Maybe not?

Josh, are you out there?

Latange?

Mr.

Pollard, your line is open, sir.

Okay, there is no response.

Can you hear me now?

Yes, I can hear you now.

Sorry about that.

That's okay.

I drop calls about every other call.

Sounds good.

My question is on writedowns.

The Company over the last call it six to nine months has been lifting prices and effectively lifting prices or raising incentives in 40 to 60% of the communities, we've seen better absorption rates.

Excuse me, Josh.

That's decreasing incentives.

Decreasing incentives, excuse me.

That's okay.

So with the higher absorptions, lower cancellations, and decreased incentives, I'm trying to get a sense of what you guys are thinking for writedowns in 2010?

No way.

I'll let Joel give you the long answer.

We can't give you guidance.

We knew we would have already written it down.

That's for sure the answer.

Sorry.

Thank you, Josh.

Latange?

Your next follow-up question comes from the line of Michael Rehaut with JPMorgan.

Hi, thanks.

Just wanted to circle back to a topic we were discussing a couple of weeks ago in your now final order preview call which is land and the land market and obviously, aside from deciding what to do with the $2 billion, roughly $2 billion cash position, I think you mentioned that obviously more land deals in the market today to look at, maybe you're bidding more, maybe you're not successfully closing on as many just given that there's some level of competition but from a geographic standpoint, I was hoping you could give us your view on which markets today perhaps at least in terms of what's being offered from a price standpoint do you think you're closer to doing more deals at and which are further away in terms of what's coming out there is still being relatively unattractive in terms of the ask?

I think all of the markets are available and the asks are not so far away from reality any longer.

I think rather it's just got to do with what markets do you want to spend your money in rather than what markets are dislocated in terms of price to value.

Latange?

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

Hi guys, it's Alan.

Ivy had to hop, but she was just going to ask you just Bob kind of your thoughts thinking about the mothball land positions that you have and how you go about weighing that versus returns and what you think the ultimate return profile of the business should look like because obviously the longer those assets sit in mothballed status they're going to weigh on your returns so kind of how do you counteract that, what do you think the returns should be kind of in a normal business cycle and what else can you do to improve that assuming the land remains mothballed for quite a while?

Well, we don't feel a constraint, a push to take land out of mothball earlier than we would to try and maximize the returns from that land.

As a matter of fact just this Monday I can recall I looked at one that had been mothballed in around Washington D.C.

market and we decided to go to market with it because we felt we could get a pretty good return out of it.

We studied and discussed the comps that we were looking at and the market and the traffic and what others have been doing in that market and decided it was worth taking this out and opening up shop and seeing if we couldn't get a return.

We don't look at it in terms of this has been sitting with us and the longer it sits the worse it gets or the more it hurts our overall Company and we ought to try and move it so that we can get something fresh.

Our land is not fungible.

For the most part, it's in a pretty desirable location and if we don't think we can get the fair return on it because of market conditions, we're not going to push the market, we're not going to race the market to the finish line.

We're going to wait for the market to come and then we're going to come to the market with our land.

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

Yes, thanks.

I think you guys mentioned the sale of strategic assets which I'm assuming is land but I don't see any revenue break down so can you give us a sense of how much in revenues we're talking about?

I think we discussed in the third call but I don't remember the numbers.

Anybody recall how much we sold?

$35 million?

It wasn't a lot of cash money.

It was the fact that we didn't really think those markets would be able to absorb that land for a long period of time.

Long period of time.

And made sense for us at this point to dispose of it and try to redeploy that money and so I think that it wasn't a lot of money.

It didn't add to my coffers.

Sorry that's the best we can do for the moment on that.

The next follow-up question comes from the line of Joel Locker with FBN Securities.

Just on the a couple quarters ago you gave the year-over-year community count growth in contracts for the four week period and eight week period and I was wondering if you had those for the latest four week and eight week period?

Actually, I don't have contracts.

I have deposits.

On a per community basis, we're up in the last four weeks 30% over last year and in the last eight weeks, we're up 58% and the last 12 weeks we're up 45%, so what you can see is we were doing very well.

We were doing warp speed and then we came back in the last four weeks to only be doing very good.

But that is consistent with what we've been saying all along.

We had this good period up through Labor Day, from March through Labor Day and then from Labor Day to the present, choppy waters, so that's why the last four weeks we're only up 40% as opposed to up 58%.

30.

I'm sorry 30% as opposed to 58% on a per community basis.

Thank you.

Your next question comes from the line of Jim Wilson with JMP Securities.

Hi good afternoon, Bob, how are you?

Doing well, thank you, how about yourself?

Just fine.

Just have one question as you talked about easing the incentives that you had to offer.

Could you give a little color on where it's been easiest to back down or to kind of a better pricing environment in the country, some of the better markets?

Well, part of the easing is we had more cancelled contracts, homes earlier that had bigger discounts on them so part of the differences is the fact that we expect to sell less homes going forward and therefore, or with less incentives.

I think the question is rather what markets do you have pricing power in.

Yes, that's a better way to put it.

Yes, and we saw it in Massachusetts, we saw it in Connecticut, we saw it in the New York suburbs, we saw it in the city living product in both Jersey City, Hoboken and in Manhattan and Brooklyn.

We saw it in the State of New Jersey.

We saw a little bit of it in Maryland.

We've had some pretty good action recently in Florida but we're still a little slow to pull that gun from the holster, so although we see a stronger market recently, I'm afraid it's still anecdotal and I don't want to make any judgments with respect to pricing just yet until it follows through a little more.

There you have it.

I'm sorry go ahead.

How about the western half of the country, not much change or what have you seen?

Well, I answered your question not having heard from the western half of the country, logical mind would deduce that it's just not that strong.

We actually have done fairly well after introducing some pretty decent incentives on the multi-family product, East Bay, San Francisco but it took a price correction in order to get things moving.

Vegas, death takes a holiday, Phoenix is still very slow, California is spotty, great spots are doing well, anything less than great is not doing well at all.

Chicago is still a very very slow market and I think that's enough of the bad report.

Let's get back to some other questions.

Thank you.

Latange, that's your queue.

Yes, sir.

At this time there are no further questions.

That's great.

Thank you very much, and thank you everybody for listening.

Have a great day.

Goodbye.

This concludes today's conference call.

You may now disconnect.