1. FINAL TRANSCRIPTCTX - Q3 2009 Centex Corporation Earnings Conference Call Event Date/Time: Feb. 04. 2009 / 10:00AM ETwww.streetevents.comContact Us 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

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FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallCORPORATE PARTICIPANTS Tim Eller Centex Corporation - Chairman, CEO Cathy Smith Centex Corporation - EVP, CFO Matt Moyer Centex Corporation - Vice President Investor Relations CONFERENCE CALL PARTICIPANTS Ivy Zelman Zelman & Associates - Analyst Joel Locker FBN Securities - Analyst Rob Hansen Deutsche Bank - Analyst Dan Oppenheim Credit Suisse - Analyst David Goldberg UBS - Analyst Josh Levin Citigroup - Analyst Kenneth Zener MacQuarie Capital - Analyst Rob Stevenson Fox-Pitt Kelton - Analyst Michael Rehaut JPMorgan - Analyst Stephen East Pali Capital - Analyst Stephen Kim Alpine Woods Capital Investors - Analyst Megan McGrath Barclays Capital - Analyst Carl Reichardt Wachovia Capital Markets - Analyst Eric Landry Morningstar - Analyst Alex Barron Agency Trading Group - Analyst James Wilson JMP Securities - Analyst James McCanless FTN Equity - Analystwww.streetevents.comContact Us 1 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 3. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallPRESENTATION Operator Good morning, and welcome to the Centex Corporation fiscal year 2009 third quarter earnings conference call with senior management. Today's call will be recorded and transcribed. Today's call also will be simultaneously webcast at ir.centex.com. A copy of today's presentation is now available on the Web site. As usual, participants must download and advance their own slides during today's conference.Continuing on slide 2, Centex wishes to emphasize to everyone listening on the call and via the Internet that certain statements made during the course of this call are forward-looking. These statements are not guarantees of future performance and are subject to significant risks and uncertainties that could cause actual results to differ materially from those discussed during the call.For further information regarding these risks and uncertainties and Centex's forward-looking statements, please refer to the forward-looking statements disclosure in the presentation and to Centex's reports on Forms 10-K and 10-Q filed with the SEC. All participants will be in a listen-only mode. There will be a question-and-answer session after management's remarks.(Operator Instructions) If you have additional questions following today's call, please contact Matt Moyer, Vice President of Investor Relations, at 214-981-5000.I will now turn the call over to Tim Eller, Chairman and CEO. Please go ahead, sir. Tim Eller - Centex Corporation - Chairman, CEO Thank you, Melinda, and good morning, everyone. Thanks for joining us for our fiscal year 2009 third quarter conference call. With me today is Cathy Smith, our Chief Financial Officer; Mark Kemp, our Chief Accounting Officer; and Matt Moyer, head of Investor Relations.I will start our call today on slide 3 with my perspective on the marketplace and our performance during the quarter as well as provide insight into actions we are taking to navigate this cycle. Next, Cathy will discuss details about our financial performance for the quarter and then I will offer some closing comments and we will address your questions.In the third quarter, disruptions in the economy and the credit markets caused unprecedented buyer hesitancy. As unemployment rose and consumer confidence fell, buyers remained firmly on the sidelines. As a consequence, our sales were extremely weak early in the quarter. With some adjustments and incentives, sales momentum returned in December and has carried into January.We sold more homes in December than October and November combined and January was better than December. We also protected our backlog. Centex ended the quarter with 4,600 units in backlog worth more than $1.2 billion.Cancellations while higher as a percentage of sales actually declined sequentially in absolute terms. And by quarter's end, cancellations had declined to the lowest level in two years. Based on my experiences through multiple housing downturns, I believe Centex is taking the right actions to navigate this cycle. We have been consistent with our actions and grounded in current market realities.We have responded with a strategy that remains centered on selling homes, reducing costs, generating cash, and restoring profitability. We are maintaining a strong cash position. Our cash balance increased during the quarter by $200 million to nearly $1.5 billion. We expect to generate positive cash flow from operations in the fourth quarter and for next fiscal year as well.www.streetevents.comContact Us 2 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 4. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallWe are aggressively minimizing cash expenditures at all levels of the organization. We have lowered land related spending and intend to reduce it even further in fiscal 2010. We've cut corporate and homebuilding SG&A expenses by 48% from a year ago. Every expenditure is scrutinized to see if we can eliminate it, reduce it or make it more efficient. We are continuing to focus on restoring operational profitability.With prices continuing to decline, our efforts to restore profitability are concentrated on aggressively attacking direct construction and overhead costs while preparing for the new land opportunities that will arise. Since the beginning of the fiscal year, we have achieved direct construction savings that average 17% per square foot. We have captured these savings by collaborating with our trade partners to improve production efficiencies in ways that are mutually beneficial.Overhead costs are also trending down and we are accelerating overhead reductions in response to a deteriorating economy and housing market outlook. Our head count has been reduced by 30% since September 30 and we continue to be aggressive about further reductions. We further realigned our operations to serve 35 markets from 19 operating divisions. Support functions continue to be centralized to improve efficiencies.We understand the current market realities and the importance of sizing the organization for what could be a sustained period of low demand. As the cycle progresses, we will start to see the banks work through the land and lots they have acquired. We have been in continuous contact with the banks so we can move quickly when the time is right. They are ramping up their processes now and we are prepared to take advantage of the new lower cost land opportunities that we believe will appear in the near future.Turning to slide 5, looking ahead, we are aggressively building a better Centex. Our core operating model is to primarily presell homes, to create a quality of backlog and build those homes to a cadence. In the current environment, we are also staying flexible by maintaining two to five inventory homes per neighborhood mainly from a natural level of cancellations to serve those buyers who require a faster delivery.A year ago, we launched an operational excellence campaign to standardize our core business processes in ways that would accelerate our recovery and create a sustainable competitive advantage. We are seeing successes in lower brick and mortar costs, faster cycle times and lower error rates. The quality of our homes continues to satisfy our customers. And satisfied customers have become a valuable extension to our sales force referring more friends and family members to Centex than a year ago.It is a testament to the operational excellence of our teams in the field. We have improved our home plans and designs through a deliberate and thoughtful approach that fulfills our brand promise of delivering a better way to a better home. Our design processes have streamlined the time to market for new home plans in the product portfolio, improving product development cycles to less than 90 days, allowing us to be nimble in responding to shifting customer demand.And, of course, it is not only about style and livability it is about value. For many of our markets today, if not most, mortgage payments for entry level homes are below local rental rates. There has rarely been a time when new home affordability has been this broad based. With the improvements we have made in value engineering, process control and design, Centex is concentrating on selling and building homes for the first time and first move-up buyers who have traditionally formed our core customer base.These customers also appreciate and value our new standard energy efficiency package which we call the Centex Energy Advantage. As of January 1, Centex Energy Advantage is a standard feature in every new Centex home in every market. The Centex Energy Advantage is a combination of features that tackles energy efficiency in a way that makes operating the home more affordable.Energy efficiency and sustainability remain key components of continuous improvement for Centex. Whether measured in terms of quality, efficiency or returns, we are intent on building a better Centex. With that, I will turn it over to Cathy to take us through some of the specifics for the quarter.www.streetevents.comContact Us 3 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 5. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Cathy Smith - Centex Corporation - EVP, CFO Good morning. I would characterize our fiscal third quarter much like I have the last couple of quarters. We generated cash, improved growth margins, and reduced overhead costs. I am on Slide 6.Our homebuilding operations were cash flow positive for the sixth straight quarter. This reflects our keen focus on cash. In the past nine months, we have retired $265 million of debt, and increased our cash balance by almost $900 million.In the quarter, we generated positive cash flow from operations and increased our cash balance by $173 million. We continue to generate cash through selling homes, minimizing cash uses, and utilizing our developed lot supply. Another positive of the third quarter is the year-over-year improvement in our gross margins.Housing gross margins improved 110 basis points year-over-year to 13.6% including interest relieved through cost of sales. Before interest, our housing gross margin was 16.5% versus 14.5% a year ago, demonstrating solid progress toward improving profitability in our core homebuilding business. We also made good strides toward improving profitability through overhead cost reductions.We reduced our homebuilding overhead per closing by 8% year-over-year and lowered combined housing and corporate SG&A as a percent of revenue by nearly 300 basis points sequentially. Our head count will likely finish the year down 70% from the beginning of the fiscal year as we continue to consolidate regions and divisions and make adjustments to our corporate operations. Despite our progress in gross margins and G&A, we know we still have work to do. Our urgency to restore profitability has not diminished.In January, we also successfully amended our credit -- revolving credit facility. We voluntarily reduced the facility to $500 million. We adequately sized the facility based on our anticipated working capital needs. As we have said previously, we don't anticipate using the facility other than for letters of credit.We had good support in the amendment process with just over 90% approval. The macro outlook continues to deteriorate with the eventual recovery moving farther out in time and additional price reductions expected in most markets. On a pre-tax basis this quarter, we recorded $590 million in impairment and land-related charges, including $467 million in land impairment, $14 million in option walkaway costs, $71 million in JV impairments, and $38 million in goodwill impairment.By way of perspective on this, we impaired 127 neighborhoods this quarter which brings the total number of neighborhoods impaired at least once to about half of our total active and inactive neighborhoods. We have included future price reductions and slower absorptions in our impairment DCF models. As I have said each quarter, we take a consistent, methodical approach to land valuation.We recognize this as a dynamic environment. We will continue to take the same disciplined approach to valuing our assets each quarter. Along the impairment analysis, it is essential to assess each neighborhood for positive incremental cash flow. We evaluate every asset every quarter to make sure we have the right strategy for that particular asset.We assess whether the highest return is to sell, build through or hold. We are still finding that the best answer most of the time is to continue to build through our assets. Continuing to build through our assets will leave with us a leaner balance sheet and an opportunity to add faster turning, higher yielding assets in the future.We also increased our valuation allowance related to our deferred tax asset by $239 million. In total, the gross balance of our DTA is $1.23 billion with a valuation allowance against it of $1.18 billion or just over $9.50 per share. We will realize this asset as we see stability and an improving environment and a return to profitability. However, I should note that the current NOL carryback legislation could have a positive impact if enacted.www.streetevents.comContact Us 4 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 6. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallLet me give you some details regarding our Financial Services segment. Last quarter we told you we were winding down our retail operations. As we focused solely on supporting our homebuilding business, we are now creating a more efficient, flexible business model by centralizing our mortgage processing.We plan to complete the centralization effort by the end of our fiscal year. And related to the centralization we expensed $4.3 million in the period. We expect to have additional charges of $5 million to $10 million in our fourth fiscal quarter as we complete the transition. In total, our Financial Services recorded a loss of $14 million this quarter versus the $60 million loss a year ago.Included in the Financial Services loss is $6.5 million in additional provisions for losses on mortgage loans and real estate owned. In the quarter's loss is also the centralization costs I discussed earlier. In fiscal 2010, we expect Financial Services to be profitable in the builder-only business model.Slide 7 provides the details around the homebuilding operations for the third quarter. We closed 3,405 homes in the quarter, 49% fewer than last year. The average price of homes closed in the quarter declined 10% to $241,000. Total homebuilding revenues were down 53% to $843 million.Sales in units were down 80% year-over-year. On a per neighborhood basis, sales were down 75% as average neighborhoods declined 23% to 499. As Tim said earlier, we have seen a rebound in sales activity recently to the point that January sales will almost equal that of the entire December quarter. Some of our sales weakness was also likely due to the elimination of DPA loans which had been running at about our third of our orders.Our cancellation rate was a 55% in the quarter, but on a client perspective, as a percent of beginning backlog our cancellation rate was 19% which was actually down nearly 1,000 basis points year-over-year and over 400 basis points sequentially. All that said, we took advantage of the lower interest rate environment and promoted some mortgage rate incentives. And buyers responded.Following the weaker sales pace and higher cancellations, our backlog fell by 46% year-over-year to 4,628 units valued at $1.22 billion. This is one of the strongest backlog positions in the industry and a direct result of our build-to-order model and our more discrete use of incentives within our transparent pricing model.As I have mentioned in the past, the right level of backlog will be increasingly important to us. Creating a presold backlog allows us to build to a cadence. Building to a cadence using standardized business processes yields operating efficiencies, higher margins and more predictable results. And developing a backlog through preselling enables the asset-light aspects of our business model.Additionally, during the past 12 months, we have lowered the number of JVs with leverage from 18 to 10. Our investment in JVs has gone from $241 million to less than $140 million. We have reduced our share of debt relating to these JVs from $262 million to $152 million. We expect to make even more progress on all these metrics before the end of the fiscal year.Let me take a few minutes to review the regional results. Slide 8 details sales and closings by region. In our East region, sales were down 76%. The coastal Carolinas and D.C. Metro continue to be relatively better performers than the rest of the regions.In the Central region, our Texas divisions were the better performers. And in the West region, sales were down 89%. As we all know, inland California, Phoenix and Nevada continue to be among the nation's most challenged markets. Similar to sales, year-over-year closings were down across the board reflecting the soft market environment and the reductions in active neighborhoods.Moving to slide 9. The current conditions in the housing market highlight even more the strength of our strategic choices as they are yielding the expected positive results. Our business model emphasizes selling to a backlog and then building to a cadence. This increases our profitability and predictability.www.streetevents.comContact Us 5 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 7. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallOur gross margins before interest have now improved 640 basis points in the last nine months to 16.5% in the third quarter. Incentives and discounts are down to 7.3% this quarter versus 15.2% a year ago. This is the fourth consecutive quarter with a sequential decrease. We have further reduced our land acquisition and development spending for the entire fiscal year to $350 million, of which about $50 million of the spending remains and given the recent volumes, we expect our land spending next fiscal year to be less than this year's.We have reduced our direct construction cost by 9% per unit year-over-year. Our operators and trade partners are working hard to take advantage of the efficiencies gained in our production cadence model. These efficiencies will become more meaningful when volumes return.For the foreseeable future, we expect to take advantage of the fully and partially developed lots in most markets. Using a cash light model in all our markets, we are actively assessing and cataloging future potential land. For this acquisition model to be effective, we are establishing important relationships now both with developers and capital sources.Starting early in this cycle, we recognize our value proposition to shareholders will to be consistently produce a solid homebuilding margin and a high asset efficiency. We will execute a finished lot strategy and we'll be generally adverse to tying up large amounts of capital in slower turning undeveloped land.We ended the quarter with a cash balance of $1.47 billion and we are expecting our cash balance to increase by the end of our fiscal year. Additionally, we expect to generate positive cash flow from operations in fiscal 2010. Our priorities and focus remain consistent; sell homes, generate cash, and structure for profitability.I will now turn the call back over to Tim for his concluding remarks. Tim Eller - Centex Corporation - Chairman, CEO Thanks, Cathy. I am on slide 12. The recent economic and credit market shocks caused unprecedented buyer hesitancy during the quarter. Sales were severely impacted early in the quarter, but we adjusted successfully to the difficult environment. Through this cycle, we have been steadfast in our strategy for turbulent times. Sell homes, reduce costs, generate cash, and restore profitability.We are acting swiftly and appropriately to navigate this cycle. I believe we are doing what's necessary to rank among the winners when the score of this historic downturn is finally counted. Our quick adjustments restored sales momentum to December and into January and we protected the quality and quantity of our backlog.Centex has bolstered its cash position. Cash on hand for the fiscal third quarter reached nearly $1.5 billion. We are currently expecting positive cash flow from operations in the fiscal fourth quarter and for fiscal 2010. We are minimizing cash expenditures at all levels of the Company. We will reduce land-related spending in the fiscal fourth quarter and achieve further savings in the next fiscal year.We are keenly focused on restoring profitability. Direct construction costs are coming down, and we have accelerated overhead reductions. We are also prepared to take advantage of lower land and lots as the banks begin to work through their land portfolios. We are making progress on key initiatives that are fundamentally reshaping our Company.We have restructured scalable division operations that reach the markets we deem most desirable and centralized support functions for higher efficiency. We've improved our home and community design processes, and repositioned our home plan portfolio to align with customer demand.www.streetevents.comContact Us 6 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 8. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallWe focus both on the appeal of the product and a value-oriented price for our traditional core customers, first-time and first move-up buyers. Despite the turbulence, I believe Centex is making hard-fought progress toward our objective of becoming the most efficient, highest returning, highest quality national homebuilder. We intend to be among the winners as we emerge from this cycle.Now Melinda, let's address questions. QUESTIONS AND ANSWERS Operator At this time, we will begin taking questions. (Operator Instructions) Thank you. Our first question comes have Ivy Zelman from Zelman and Associates. Your line is open. Ivy Zelman - Zelman & Associates - Analyst Hi, good morning, everyone. Thank you. Tim Eller - Centex Corporation - Chairman, CEO Good morning, Ivy. Ivy Zelman - Zelman & Associates - Analyst I am home with a snowstorm with a dog barking so I apologize in the background. You guys have done a great job at explaining to us the details behind the impairments and really the significance you have taken so far is 35% of your tangible adjusted basis. We show your tangible equity on a tax-adjusted basis.Can you help us further by maybe helping -- understanding how much of that has been on the undeveloped portion of your portfolio versus finished, and realizing if that 35% is the severity is the undeveloped portion being written down to that level of magnitude and maybe some clarity on the differences between finished and undeveloped? Cathy Smith - Centex Corporation - EVP, CFO Yes. Ivy, we had, out of the $590 million of total impairments this quarter probably little less than a third, probably more like 25% or so was against land held. Which would be predominantly stuff that will not be in production for the next year. Not all of that is completely undeveloped, but I think that is the largest piece of that. Does that help? Operator Okay. Just one moment -- . Tim Eller - Centex Corporation - Chairman, CEO Technical difficulty here so stand by. www.streetevents.comContact Us 7 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 9. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Operator Ms. Zelman your line is open. Ivy Zelman - Zelman & Associates - Analyst Thanks, sorry, Cathy. I guess what I was just hoping is that you said 25% of the $590 million, but if you actually looked at an undeveloped lot on average in the land held, would you be writing it down to $0.50 on the original purchase or some severity that we can understand because it seems as if comparable to other builders like Horton yesterday that took only $50-plus-million in impairments.Obviously, you have been impairing more aggressively and maybe we can understand and benchmark better because I think it is confusing investors. Cathy Smith - Centex Corporation - EVP, CFO Let me help provide some understanding of our methodology. We look at all of our active and inactive neighborhoods as you know every single quarter, and we look at those through a buildout scenario, and so we say whether it is an active neighborhood or one that is in land held, we say when are we going to put that asset in production and then we use some third-party economic forecast to help us understand that specific market and what will happen with price and recovery times.And so that helps us -- so what I am saying is we really don't look any differently at the undeveloped versus the developed. And typically the undeveloped or the land-held stuff is just farther out in time. But we use the exact same methodology. Ivy Zelman - Zelman & Associates - Analyst Okay. But you don't have at this point the ability to tell us how much you have written down as an example? I guess it is hard to do that with the portfolio as big as it is. Let me sneak in a second question and then I promise I will stop, with respect to your land spend, the $350 million in '09 with less being spent in 2010. You have roughly 50% of your portfolio is finished, I think is what you said on the last conference call that you hosted? Cathy Smith - Centex Corporation - EVP, CFO Yes. Ivy Zelman - Zelman & Associates - Analyst I don't know if that number is still right. One of the conundrums you probably have is when do you start putting infrastructure spending in undeveloped ground because you have to plan for that well in advance and one of the things we are curious about what is happening with bond insurance, with infrastructure spend where bond insurers have pretty much left the industry, curious if you were seeing challenges there and are you doing any infrastructure spending or is it really not in the game plan and when will it be? Tim Eller - Centex Corporation - Chairman, CEO Good question, Ivy. So let me talk about the land spend right now. There is some obligatory land spend -- what we call obligatory -- primarily to reduce our bonding situation. So we actually finish out lots and -- and neighborhoods and then release the bonds.www.streetevents.comContact Us 8 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 10. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallSo most of that spend is around exiting our existing neighborhoods and relieving our bonds. So our bonding is coming steadily down to the tune of about $200 million or more per quarter.In terms of our bonding on -- our surety bonds on the balance, we are -- we have had no issue with our bonding providers, our surety providers, and we continue to work with them and even on new subdivisions.In terms of additional land spend for development, we are finding that we can do very small increments now in land development, down to 20, 25 lots, sometimes even less than that depending on the situation. And we're primarily developing in the markets that you would expect which are still relatively robust which is Texas and to the Carolinas and to an extent in D.C. Cathy Smith - Centex Corporation - EVP, CFO You know, Ivy, we also have the access of a lot of finished lots for a while. And so we will be able to continue to -- we won't have to invest in our own infrastructure because we have -- most markets will provide that. Ivy Zelman - Zelman & Associates - Analyst Cathy, a lot of people have criticized that the finished lots are in the, unfortunately, not the best locations which you have been in the market looking for lots, for example, Metro D.C. and maybe that is not the case everywhere, but would you agree there are some areas that you will have to replenish because you don't have as desirable finished lots in all the areas that you would like? Cathy Smith - Centex Corporation - EVP, CFO The quot;Aquot; locations will go first, but there are finished lots in pretty much every market and Tim is going to answer. Tim Eller - Centex Corporation - Chairman, CEO I think we have a variety of positions, quot;Aquot; locations, quot;Bquot; locations. What happens in these downturns like this, the quot;Aquot; locations will go first and they won't be replaced because no one would want to invest in the infrastructure. Then the quot;Bquot; locations will become more valuable. We see that happening in a lot of markets, even in a very oversupplied market.You and I talked about this before like Atlanta where there are just a very few limited number of quot;Aquot; locations and we have identified those. We are acquiring a few. But once they are gone. It will be the quot;Bquot;s. Ivy Zelman - Zelman & Associates - Analyst Great. Thanks, guys. Operator Your next question comes from Joel Locker from FBN Securities. Your line is open.www.streetevents.comContact Us 9 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 11. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallJoel Locker - FBN Securities - Analyst Hi, guys. Just on your gross margins. They showed a nice improvement in the second quarter and then took a 144 bp decline in this quarter. And I was wondering with your construction costs continuing to decline and the further impairments benefiting future margins, if your gross margins at backlog were signaling a bounce back towards the second quarter level? Cathy Smith - Centex Corporation - EVP, CFO This quarter, as you said, sequentially did come down. It was really as we saw price continue to come down a little faster than we could get costs coming down. This is the difference for this quarter. Joel Locker - FBN Securities - Analyst Right, but -- I was just saying in backlog, are you seeing those improve because now you might have caught back up with the price declines? Cathy Smith - Centex Corporation - EVP, CFO As we continue to say, we know our margins in backlog are going to be much better than they would be selling inventory homes. Joel Locker - FBN Securities - Analyst Selling inventory. All right, thanks a lot. Operator Your next question comes from Nishu Sood from Deutsche Bank. Your line is open. Rob Hansen - Deutsche Bank - Analyst Good morning. This is actually Rob Hansen on for Nishu. As a follow-up on the impairments. On average what type of price declines were you incorporating into your models and were there any areas where it was a lot larger than others? Cathy Smith - Centex Corporation - EVP, CFO You know averages are tough, but somewhere between probably 5% and 10%. Rob Hansen - Deutsche Bank - Analyst Okay. And we have heard basically that this week some of the builders were in Washington, and some of the Senate Republicans were on board with a $15,000 tax credit. Just wanted to see if you guys were there this week or if you have any updates on -- on making inroads in Washington especially with the new administration?www.streetevents.comContact Us10 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 12. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallTim Eller - Centex Corporation - Chairman, CEO Well, we are here, we are not there. But I have been there, so it's -- we are all working toward the same goal, which is to stimulate this economy. And we believe that there can't be a viable stimulus package without stimulating housing. We have to absolutely stimulate the demand side of housing in order to begin some price support for the prices that are continuing to decline and, of course, absorb these continuing foreclosures. Operator Your next question comes from Dan Oppenheim from Credit Suisse. Your line is open. Dan Oppenheim - Credit Suisse - Analyst Great. Thank you so much. I was wondering if you can you provide a little more color in terms of your comments of having the specs in each neighborhood and also the build the-to-order strategy.I guess what I am trying to understand is you are talking about having two to five specs per neighborhood and if it's probably 500 neighborhoods it's anywhere between 1,000 and 2,500 specs, and this past quarter it was just under 1,100 orders. It seems like that would be a lot of specs and just trying to understand how you are looking at that here? How many specs you had at third quarter end? Tim Eller - Centex Corporation - Chairman, CEO Well, we said two to five and it doesn't necessarily mean it averages on the high side. Probably averaging on the low side. Just to give you some color, our unsold inventory level at the end of the quarter was in the neighborhood of 1,400 units, a little less than that I think.It's really neighborhood by neighborhood, Dan. And we actually have a plan for each neighborhood and the more popular neighborhoods that require quicker deliveries, and to some extent, roughly 50% of our sales this last quarter were inventory units. We need to provide products for the consumer who demands that.Now having said that, we are not changing our model at all. This doesn't imply that we are changing our model one bit. In fact, being able to provide and monitor the amount of specs per neighborhood fits very comfortably in our model. Dan Oppenheim - Credit Suisse - Analyst Okay. If you can give us a little more color in terms of the order trends during the quarter. You talked about how much better December was relative to October and November. Did you see basically a rash of cancellations there in October and was there a region, let's say, in the West where you had negative net orders for the month? What was driving that and when did your cancellations come in? Tim Eller - Centex Corporation - Chairman, CEO Cancellations actually continued to decline during the quarter. What happened was sales declined faster. And, again, buyers chose to be on the sidelines for us and October and November was particularly poor for us.www.streetevents.comContact Us11 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 13. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallNow we are helped and we helped ourselves through interest rate incentives. So as mortgage rates came down during that same period of time, we were able to provide pretty attractive mortgage rates, 4.5% fixed 30-year rates in the 3.75% range for two-year buydown mortgage rates. So we were able to provide at a reasonable cost some attractive mortgage rate incentives.When you think about mortgage rates in the 4%, 4.5% range, you are talking about a monthly payment on a $200,000 loan that is well below $1,000. Well below $900. So we are very much competing with apartments now in this interest rate environment. Operator Your next question comes from David Goldberg from UBS. Your line is open. David Goldberg - UBS - Analyst Thanks. Good morning, everybody. Cathy Smith - Centex Corporation - EVP, CFO Good morning. David Goldberg - UBS - Analyst The first question I had was about the transparent pricing model and how you guys know where your competitors are pricing, how frequently you are shopping other communities to get an idea if your pricing is in line with what's being offered by your competitors because they have more opaque pricing. Tim Eller - Centex Corporation - Chairman, CEO It takes some frequency, you are right, David, in terms of really understanding what's going on in every neighborhood, as much as weekly. Just reviewing what is happening weekly, and sometimes it's harder to sort out than others. So there is some hunt and peck occasionally, but what we find is once we -- you get a pretty good sense of the market and what's happening and price transparently and we always offer some room for incentive in addition to our transparent pricing. We find we can correct pretty quickly which is what we did in December. David Goldberg - UBS - Analyst Do you think there is consistently a lag in a declining market? There's always going to be a little bit of underperformance until you can -- maybe that is what was happening in October and November even though they were tough times? Tim Eller - Centex Corporation - Chairman, CEO I'd say it happened to us in October and November and we probably stuck with it a little longer than we should have because we had a very strong backlog. So we did make adjustments more dramatically in December and now our adjustments are really ongoing, if needed.www.streetevents.comContact Us12 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 14. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallDavid Goldberg - UBS - Analyst My follow-up question is cycle times and where you guys are with cycle times now relative to where you were six months or a year ago and where you think you can get cycle times and how that translates into an inventory turnover figure. Tim Eller - Centex Corporation - Chairman, CEO Well, for example, if we just look at home -- home -- new home under construction six, eight months ago our cycle time may have been 90 days. And through our process improvements we have taken that down to 75 days. Sometimes even 70 days.Having said that, we really need to have a backlog in order to develop the cadence. We're actually losing scale in some markets. It's a little bit more difficult to build to that backlog, but when we have it, we are seeing pretty dramatic efficiencies. A lot more around the predictability of the schedule, David, than it is shortening the schedule. So we are optimizing our schedules in the 70 to 75-day range and we are finding that is the sweet spot. Operator Your next question comes from Josh Levin from Citi. Your line is open. Josh Levin - Citigroup - Analyst Good morning, everybody. Cathy Smith - Centex Corporation - EVP, CFO Good morning. Josh Levin - Citigroup - Analyst I wanted to ask about your statement you expect to have positive cash flow in fiscal 2010. I think if I recall correctly in your last call you said you would be cash flow positive -- at then I guess your current volumes. What are your assumptions now about volumes and relative to where they are now in backlog and what the minimum level of closings you will need to be cash flow neutral or positive for next year? Cathy Smith - Centex Corporation - EVP, CFO Yes, obviously I want to steer away a little bit guidance. When we say we can be cash flow positive. Kind of a good indication would be half of our trailing 12-month sales is probably a good set of models or so and that is pretty consistent with what we told you last time. Josh Levin - Citigroup - Analyst Half of your current 12 month. Okay. Second question. Tim, you talked about buyer hesitancy late last year. Do you have a sense from being out in the field or talking to your operators out in the field how much of that hesitancy was due to low consumer confidence versus buyers -- keep reading in the paper that interest rates are going to fall and they are waiting to get the low interest rate?www.streetevents.comContact Us13 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 15. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Tim Eller - Centex Corporation - Chairman, CEO There are three primary reasons that we find. One is just concern about the economy and jobs. And that is the principal concern. It was then and it is now. What is going to happen to the economy. What is going to happen to my job.Second, is concern about declining home prices. Are home prices going to continue to decline? And, third is, can I sell my home. We responded in some ways -- we have actually increased our proportion of first-time buyers which traditionally has been about 45% of our business.It is now closer to 55% of our business which is a good way to make up that. But buyers are still concerned about selling their homes, if they have a home to sell, the first move-up particularly. Offsetting that is the attractiveness of 4.5% and so percentage interest rates.Locking those in for 30 years and that is what buyers are particularly choosing to do lock those in for 30 years. They are not looking at ARMSs, they're not looking at as much as two-year buydowns. They're looking at give me a 30-year fixed mortgage at 4.5% or something like that. And that is a very powerful draw and it's a very powerful impact on affordability. Operator Your next question comes from Kenneth Zener from MacQuarie Capital. Your line is open. Kenneth Zener - MacQuarie Capital - Analyst Good morning. Cathy Smith - Centex Corporation - EVP, CFO Good morning. Kenneth Zener - MacQuarie Capital - Analyst Tim, you talked about the need to get demand in housing. This is kind of a top line bigger picture question, but how concerned are you that a lot of the closings -- I guess, first, how many of your closings was tied to FHA-type loans.And then what are your concerns about those loan type programs that use very low equity given that prices are falling and they could be under water which is part of the problem we are facing right now. How do you think of the benefits of spurring demand relative to destabilizing the equity base? Tim Eller - Centex Corporation - Chairman, CEO Well, FHA has been an increasing portion of our business. Kind of peaked actually at almost 80% for a while. It is back down to about 65% of our originations right now, our buyers -- 65% of our buyers are choosing FHA. FHA is a very seasoned program with -- with a lot of history in terms of performance and defaults.FHA has actually tightened up its credit underwriting in these times, and they have actually increased their down payment requirements through closing costs allocations. So we -- we continue to believe it is a very viable program. We don't see a lot of risks there.www.streetevents.comContact Us14 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 16. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallThese are very qualified buyers that understand what is happening. And buyers today if they are in the market, understand what is happening. Understand the risks and are there, we believe, to perform and they are their underwriting is tighter than it has ever really been in my recollection. Kenneth Zener - MacQuarie Capital - Analyst I appreciate that. And the fact -- your gross margin at 13.5% compared to where you are thinking backlog might have been delivering margins in that 15% or plus range. Is that a matter of half your sales being -- what seems to be spec sales with a mix between your backlog and spec or was there some other factor? Cathy Smith - Centex Corporation - EVP, CFO No, that is really an attempt -- we are seeing a good portion of the sales right now, the inventory homes, and we did have a number of inventory homes especially with the CANS this last quarter and that's driving some of the margin and it's just price dropping a little faster than we can get costs down. Operator Our next question is from Rob Stevenson from Fox-Pitt Kelton. Your line is open. Rob Stevenson - Fox-Pitt Kelton - Analyst Good morning, guys. Cathy, you talked about the decline in sales in regions. Can you talk about the impairments in the East? And on a sequential basis it looks like it went from $30 million or so up to $218 million and sort of what markets either declined operationally the most or what changed in your underwriting assumptions there is to cause the big jump in impairments in that region? Cathy Smith - Centex Corporation - EVP, CFO Yes, in the East, it is really -- has been a couple of areas. A lot of it is down as you would expect in Florida where we are seeing the recovery to be extended out in time which is causing some of that as well as additional pressure on price. Rob Stevenson - Fox-Pitt Kelton - Analyst Okay. And then follow-up. What's the year-over-year change in the average square foot of the house that you are building today? Tim Eller - Centex Corporation - Chairman, CEO Actually it is not that much. And we just looked that the recently, but it is continuing to hold around 2,200 square feet. So interesting. Prices are certainly coming down, but the sizes, at least in terms of what we are selling, which includes high proportion first-time buyers is not Operator Your next question is from Michael Rehaut from JPMorgan. Your line is open.www.streetevents.comContact Us15 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 17. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Michael Rehaut - JPMorgan - Analyst Thanks for letting me ask a question. Tim Eller - Centex Corporation - Chairman, CEO Always, Michael. Always. Michael Rehaut - JPMorgan - Analyst Thanks a lot. Thanks, Tim. You know on the gross margin, just wanted to kind of zero down on that a little bit. The -- you know you've -- you've had a nice improvement from a couple of quarters ago. And with the increased impairments right now.I know this is kind of alluded to in an earlier question, but how are you looking that the going forward over the next couple of quarters in terms of, again, additional, incremental efforts to reduce costs at the same time you have lowered price this past quarter which drove the impairments, and you, of course, would be taking -- getting a better benefit.So just trying get a sense with the backlog now set for a quarter or two, directionally how should we think about that the 13.5% we are at right now. How we should think in a quarter or two? Tim Eller - Centex Corporation - Chairman, CEO Let me talk about the cost reduction and then Cathy can talk about the margin implications. We are continuing to get cost reductions. We've talked over the past couple of calls about 0.5% per month. It continues to runt at that rate, actually I think it may accelerate a little bit here in the next few months as commodity prices begin to, at least for the client commodity prices, begins to come through some of the products. But we also are seeing continuing price reductions as well. Cathy Smith - Centex Corporation - EVP, CFO And with regard to the impairments and the implications around margin. What we have seen is amazingly consistent actually if you look quarter-over-quarter in our home site cost as a percent of revenue. What that tells me is the impairments are really kind of manning the price reduction because it is -- we are really not seeing a -- I wouldn't say a huge benefit.We are getting it back in price and it is what is required in the market right now. And then as Tim said we are continuing to work on the other elements of the cost structure. As we can, we will buy more economically advantaged land. Operator Your next question is from Stephen East from Pali Capital, your line is open. Stephen East - Pali Capital - Analyst Thank you. First question has to do with the incentives that you have been talking about. Sounds like the mortgage buydown was the primary incentive that you were using. What is the cost involved on a per house basis for that? And will that be the primary incentive that you are going to use going forward or was there something else you were also heavily promoting?www.streetevents.comContact Us16 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 18. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallTim Eller - Centex Corporation - Chairman, CEO It is not significant, Stephen, in cost per house. It is a few percentage points. Just think about buying down an interest rate and do it through forward commitments which we do and we do it by straight interest rates, buydowns. I wouldn't say it is significantly different than what has been running.It is certainly up a couple of percentage points, but we benefited greatly from the decline in mortgage rates over the last few months, so I tell you 4% -- so any kind of 4% handle is a powerful draw, and frankly, that's what we found as well. People -- not everyone chose to take that interest rate because, again, those are primarily focused on inventory homes.We are continuing to sell houses to be built. We are continuing to do that and customers are continuing to buy houses to be built. And, of course, we are not able to guarantee interest rates out to completion for those customers, but they find it attractive to buy a house to be built. I would say the incentive was much more around generating traffic and promotion as much as realizing sales. Stephen East - Pali Capital - Analyst Okay. And then if we look at the gross margin, just a follow-on along Mike's questioning. What are you getting from the impairment benefit? As I look at it, obviously, you all have been just about the most aggressive in taking the charges.And yet when you look at how your gross margins have not jumped up relative to your peers, I guess I am trying to understand what type of impairment benefits you are getting and what is going on there you think versus some of your peers who have seen a bigger jump? Cathy Smith - Centex Corporation - EVP, CFO Stephen, I am not going to have a great answer here because we really don't track it and we've said that over of the last several quarters because it becomes very difficult to track. We don't actually look at it.What I do look at is what is our home site cost or the cost of that lot and the value in that lot versus as a percent of revenue, and that has been very consistent for a number of quarters. So that tells me we are back to what I said to Michael, that we are really -- the impairments are necessary as a way to value the land based on the sales price of the home. Operator Our next question is from Stephen Kim from Alpine, your line is open. Stephen Kim - Alpine Woods Capital Investors - Analyst Hey, guys. Tim Eller - Centex Corporation - Chairman, CEO Hey, Stephen.www.streetevents.comContact Us17 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 19. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallStephen Kim - Alpine Woods Capital Investors - Analyst I have a question regarding a comment I think that you made, Cathy, if I heard you right. You said that roughly half of the communities you currently have today were impaired at least once. That was right, right? Cathy Smith - Centex Corporation - EVP, CFO Yes, half of the active and inactive. Stephen Kim - Alpine Woods Capital Investors - Analyst And inactive. Cathy Smith - Centex Corporation - EVP, CFO Right. We look at all. Stephen Kim - Alpine Woods Capital Investors - Analyst Okay. I guess -- what I wanted to clarify was whether or not a meaningful number of the communities or lots that were not impaired were nevertheless -- nevertheless benefited from a significant renegotiation of the terms at a point in time when they were, let's say, optioned, but before you actually took them down.I am just trying to get a sense for to what degree prices today reflect maybe deals that were struck many years ago or if, in fact, they are -- they were sort of mark-to-market, if you will, before you actually owned them? Cathy Smith - Centex Corporation - EVP, CFO You know, Stephen, we have been pretty aggressive about reducing our option -- our option exposure through, gosh, a number of quarters and we evaluate the economics in the option every single quarter and we either reserve for it or we terminate the option if it economically doesn't make sense in today's market or in the -- in the foreseeable future of that asset.That's why our option dollars have continued to come down every single quarter and we took, again, some charges this quarter. We are down to a very small amount of, I think, option deposits and preacquisition costs are less than $40 million in total for the whole Company now. So I guess my point being, we would -- we will renegotiate economics that make sense or we terminate the option. Stephen Kim - Alpine Woods Capital Investors - Analyst Great. The second question I have is sort of a housekeeping point. Do you have any optioned lots which are held in a JV left or do you not have any of those left? Cathy Smith - Centex Corporation - EVP, CFO Yes, we will have -- I am looking, Mark and Matt, we have a few. We don't have a lot of JV work [and efforts] anymore, but Mark is telling me we have a few.www.streetevents.comContact Us18 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 20. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Operator Our next question is from Megan McGrath from Barclays Capital. Your line is open. Megan McGrath - Barclays Capital - Analyst Hi, thanks, good morning. Cathy Smith - Centex Corporation - EVP, CFO Good morning. Megan McGrath - Barclays Capital - Analyst Tim, I wanted to follow-up on your comment initially that you are increasing your contact with the banks about potential future land purchases.Where do you think given your experience we are in this process and what is keeping the banks from pricing attractively now, is it that there's really no demand from the builders side or are they relying too much on appraisals? What do you think is going on in that market? Tim Eller - Centex Corporation - Chairman, CEO All of the above, Megan, and more. We started saying last year that we expect 2009, calendar year 2009 to be the year that land began to flow from the banks. So we know that they are ramping up their infrastructure to deal with it. We know that they are going through the process, the foreclosure processes, which is typically what it is now with the builders and developers to acquire the land.One, I think, issue that may delay it a little bit more is this whole notion of a bad bank, which is equivalent to a RTC of older previous cycles. So I think banks are kind of wondering and maybe pausing a little bit to see what the administration is really going to do for financial system restructuring if at all.Depending on how that works out, these things take a while to work out and we expect that the latter half of 2009 we'll see a fair amount of activity. We are already starting to see some now and we expect it to accelerate through the year. Megan McGrath - Barclays Capital - Analyst Okay. Great. A quick modeling question. I want to make sure I understand the 8-K you put out around your credit facility renegotiation. Was the restricted cash, did that happen after the quarter so we should expect to see more in restricted cash in the March quarter? Cathy Smith - Centex Corporation - EVP, CFO Yes, we amended the facility in January so you will see it in the next quarter.www.streetevents.comContact Us19 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 21. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallMegan McGrath - Barclays Capital - Analyst It was about $350 million? Cathy Smith - Centex Corporation - EVP, CFO Correct. Megan McGrath - Barclays Capital - Analyst Okay. Thanks Operator Your next question comes from Carl Reichardt from Wachovia Securities. Your line is open. Carl Reichardt - Wachovia Capital Markets - Analyst Good morning, guys. Cathy Smith - Centex Corporation - EVP, CFO Good morning, Carl. Carl Reichardt - Wachovia Capital Markets - Analyst Does the potential change in the NOL carryback affect your thought process on bulk selling land over the course of, whatever the fiscal year will work for you guys especially what you will you have done? Tim Eller - Centex Corporation - Chairman, CEO We don't know what will happen with the NOL carryback. It's in the bill now, the House version. The Senate is working its way through on all of those issues and then they will go to conference and then we will just kind of have to see what comes out of it. It is kind of hard to plan for something that doesn't really exist at this point.And until it does, then we will have to decide. I don't know the answer to the question at this point either, Carl. We will have to look at the benefit of a tax refund versus the potential cost, if any, of selling land potentially at a loss. So we don't have a point of view yet. That's probably the best way to characterize it and we will have to see what the legislation looks like and then decide. Carl Reichardt - Wachovia Capital Markets - Analyst Okay. And then thinking along those lines. I mean since Centex, Tim, has been historically a Company that has been relatively -- its spread wide across the country with relatively thin share, but the focus on the new model is to effectively reverse that.www.streetevents.comContact Us20 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 22. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallHow comfortable do you feel that you have shrunk the number of markets that you are in and expect to deepen your share enough that you can maximize your efficiencies per a lot of the stuff you have talked about over the last several years. It just doesn't seem to me looking at the map that you guys have shrunk enough in terms of the number of markets.My guess is that your share is increasing to a degree, but I am just curious as to whether or not the land portfolio is going to change a lot regardless of the change in the NOL carryback. Can you talk a little bit about that? Tim Eller - Centex Corporation - Chairman, CEO We have been pretty consistent, Carl, in terms of focusing on 30 markets which I think is still the case. And we've exited the markets that, or in the process of exiting the markets that don't fit that. Having said that, we have some legacy assets in markets that we are going to have to work through. On the other hand, there are markets that are going to recover quicker and faster than other markets and that's where it will really focus our energy and our efforts.You think about markets like the Carolinas, D.C., Texas, of course, are going to be faster recovery markets. So that's where we will concentrate our resources both in terms of people and cash. But I think and continue to believe that from a cash standpoint, we will able to do this on a very asset light basis even in those markets.So, again, back to your question in terms of breadth and depth. We have consolidated all of our Florida operations into one division, for example, because we see that market recovery as being beyond the near term. But we want to maintain a presence in that market because it -- we could be wrong, number one. And it will recover. Operator Our next question comes from Eric Landry from Morningstar. Your line is open. Eric Landry - Morningstar - Analyst Good morning, thanks. Cathy Smith - Centex Corporation - EVP, CFO Good morning. Eric Landry - Morningstar - Analyst Cathy, when I do the math here for average order price I'm getting about $191,000 per unit. First of all, is that in the ballpark? And second of all, can you explain what is going on there if it is? Matt Moyer - Centex Corporation - Vice President Investor Relations Yes, I do that calculation every quarter and that is the right math. I will tell that you there was -- because of the increase in the number of specs we closed this quarter, there were a number homes probably higher than the last several quarters that sold and closed in the same quarter or sold and closed in the quarter which would reduce your kind of -- it would artificially lower the sales price that goes in the backlog. We know if you just divide backlog dollars by unit dollars, it is, of course, much higher than that.www.streetevents.comContact Us21 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 23. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Eric Landry - Morningstar - Analyst So -- Go ahead. Cathy Smith - Centex Corporation - EVP, CFO I was going to add a little bit more color there. We know that mix wise that we had some fairly strong sales in our Texas markets, for example. And that will typically drive that average price down a little bit in backlog. Eric Landry - Morningstar - Analyst Okay. So this is not an indication that backlog is going to see a 30% drop here any time soon? Unidentified Corporate Representative No. Cathy Smith - Centex Corporation - EVP, CFO No. Eric Landry - Morningstar - Analyst Next question is can you give me the idea of the difference in gross margin between a spec sale and a backlog or a to-be-built sale? Cathy Smith - Centex Corporation - EVP, CFO In the last several quarters it has been somewhere between 4% and 6%. Matt Moyer - Centex Corporation - Vice President Investor Relations 400 and 600 bps. Cathy Smith - Centex Corporation - EVP, CFO Sorry. Matt Moyer - Centex Corporation - Vice President Investor Relations Same thing Operator Our next question is from Michael Rehaut from JPMorgan. Your line is open.www.streetevents.comContact Us22 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 24. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call Michael Rehaut - JPMorgan - Analyst Thanks. Tim Eller - Centex Corporation - Chairman, CEO Welcome back, Michael. Michael Rehaut - JPMorgan - Analyst Thanks, Tim. Two real quick questions, if I could. First, on the legislative front you guys have done a great job garnering cash and generating positive cash flow.At the same time there is this potential incremental look-back period that's made it through the House, and I guess is being discussed in the Senate. Why not use that money, given yourself and other large builders do have much better balance sheets and cash positions.Why not push to direct that money more for -- to -- toward a stimulus? Like a down payment assistance or tax refund for a home purchase? Tim Eller - Centex Corporation - Chairman, CEO Welcome to Washington politics. I mean that is all being discussed, Michael. It is interesting to watch the process. But I think the three areas that -- that various aspects of the administration and Congress are focusing on is, one, foreclosure prevention.Everyone would like to prevent as many foreclosures from happening as possible. And, of course, we are facing as many, if not more foreclosures in the next couple of years than we faced in the past couple of years. So I think that is key on everyone's agenda. The issue is how to go about it, how to do it, the mechanics of doing it becomes very complicated.Second, I think is how to stimulate the economy and we believe that stimulating housing has to be first and foremost in any plan to stimulate the economy. So that's where we have come up with the housing tax credit. And the size of which is being debated right now. It's $7,500 in the House and hopefully proponents in the Senate are arguing for $15,000.We have actually said make it variable from $10,000 to $22,000. So stimulating housing demand, we think, will support housing prices. And interrupt the -- the continuing decline in housing values which is now totaled into the trillions of dollars of housing net worth for -- for the American people.So I think -- and then finally, the interest rate subsidy or bogged-down interest rates that are also being proposed in the Senate, those three -- we think those three key attributes of a stimulus packages is what's necessary for the economy and for housing. So -- that's independent of whatever you might do at NOLs. The NOL costs for homebuilders are insignificant. Michael Rehaut - JPMorgan - Analyst Thanks, Tim. The second question just on the impairments. The previous couple of quarters you had a fairly low number. And I believe you had talked about an optimism that you were closer towards the end of the cycle.This quarter, obviously, with the sharp drop-off in absorption and volume, it was a different world. And so going forward, how are you guys looking about becoming a little more responsive than in fiscal first half '09 in terms of price and how should we www.streetevents.comContact Us23 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 25. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Callthink about impairments going forward given that it appeared that, again, in the first half of the year, you are more comfortable holding price and not taking that type of impairment hit? Tim Eller - Centex Corporation - Chairman, CEO Well, I don't think that is true at all, Michael, so we were very aggressive, if you will recall, a year ago when we said the mortgage market is changing. The -- underwriting requirements are tightening. Down payments are increasing.We have to move to FHA and GSE mortgages and we did that, we did that through transparent pricing and we took a look neighborhood by neighborhood, market by market. That served us well.We generated a lot of sales in the first half of our 2009 and created a tremendous backlog that we continue to enjoy today. So perhaps I would say that when October and November hit and the world changed -- not only our world, but pretty much the economic world across the world changed, we had a backlog that we were delivering, and we adjusted.You could argue that it took us a month too long to adjust, but we have approached this with the same urgency that we have had from the beginning and our strategies have been the same which is sell homes. First thing we have to do is sell homes. Reduce our costs, generate cash, restore profitability. That has been our strategy and continues to be our strategy and we are continuing to execute that. Operator Your next question is from Alex Barron from Agency Trading Group. Your line is open. Alex Barron - Agency Trading Group - Analyst Thanks, good morning, guys. Cathy Smith - Centex Corporation - EVP, CFO Good morning. Alex Barron - Agency Trading Group - Analyst You gave, I guess, a statistic of about 50% of your communities have been impaired at least once. Can you kind of break that down by region just to get a sense of how that compares in the West like California versus Florida versus Texas? Matt Moyer - Centex Corporation - Vice President Investor Relations Alex, it is probably weighted toward Florida and California and then, obviously, Phoenix and the desert. But -- but we are not going to provide that number regionally. Alex Barron - Agency Trading Group - Analyst Okay. I guess my other question was you guys talked about some of the banks accelerating land sales going forward. I am just kind of wondering what you think of the impact of those land prices as they clear the market on the remaining land that maybe www.streetevents.comContact Us24 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 26. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Callyou or other builders own in similar markets where those land sales might happen? In other words, is that going to drive further impairments? Tim Eller - Centex Corporation - Chairman, CEO Well, I don't think so necessarily Alex. You know, we are -- all the land will be priced to the residual value. Let's start with the sales price of the house. What can customers afford.Just back out costs and what's left after all the cost is it what the land is worth. So it is a residual pricing model that is pretty consistent through time and across markets. So it is going to be what it is going to be is maybe the best way to characterize it.And it is going to be all around buyers' ability to afford it in the current economic, interest rate and mortgage qualification environment. And we will back -- we will just back into the value the land. Cathy Smith - Centex Corporation - EVP, CFO And I'd remind you too that we do have one of the lighter land supplies of the builders. So we will be able to take advantage of those newer land supplies coming through the banks. Operator For our next question is from Jim Wilson from JMP Securities. Your line is open. James Wilson - JMP Securities - Analyst Oh, thanks. I guess most of my questions have been answered, but I was wondering, Cathy, in the impairment, what amount of it was run through cost of sales? Looks like most of it runs through cost of land sales. Cathy Smith - Centex Corporation - EVP, CFO I am actually going to have Mark or Matt. Matt Moyer - Centex Corporation - Vice President Investor Relations There was very little. $43 million -- no, no. Actually there was none this quarter. James Wilson - JMP Securities - Analyst None at all. It was entirely run -- Cathy Smith - Centex Corporation - EVP, CFO Through the land.www.streetevents.comContact Us25 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 27. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference CallMatt Moyer - Centex Corporation - Vice President Investor Relations Well, there was some goodwill. That wouldn't be in there, but that has its own line. James Wilson - JMP Securities - Analyst Okay. You are right. Okay. Thanks. And then the -- the other question is, in the West, and I know you focused on both success in California -- sorry in Texas, Carolinas and D.C. and focus on Texas is he the Carolinas and D.C.The West, obviously, was the weakest -- I mean you're, obviously, deemphasizing it. What do you need to do to move product there or is there little enough inventory that you're not worried about it? How would you characterize your strategy in the West, California, Arizona, Nevada? Tim Eller - Centex Corporation - Chairman, CEO I'd say it's a tale of two markets really in California. In the northern markets of California, we are actually fairly land short. We are selling out of neighborhoods. We are not finding a significant amount of opportunity for replacement neighborhoods.And -- and it will just to have wait until we do. And in Southern California, it's more along the Inland Empire and that market has been historically true. Pretty significantly impacted by foreclosures right now and will continue to be so it is very difficult to compete with foreclosures.The good locations continue to sell. We continue to sell new homes in good locations, and the more peripheral locations, the quot;B'squot;, for example, are more difficult.Again, as is historically the case in Southern California, the coastal markets will come back more quickly. So we continue to maintain a presence in Orange County and San Diego and actually looking at opportunities in those two markets. They will come back before the Inland Empire and we are there. Operator Our next question is from James McCanless from FTN Equity. Your line is open. James McCanless - FTN Equity - Analyst Good morning, everyone. I wanted to address the NOL question again and ask it this way. If the five-year look-back was enacted today and Centex didn't do any more land sales before the end of the fiscal year, is there a dollar range you all could give us of a cash refund you might expect? Cathy Smith - Centex Corporation - EVP, CFO I really -- I hate to say it, but it is really just too early to tell. The reason why, it depends on the language, if it's the beginning or the ending tax year language and what we are able to access in taxes already paid. If we get the benefit of another full year to transact the built-in losses, that will be great.But given that it is politics, I -- we just -- it is really just too early to tell. We would all like to write that check right now but it is a little early.www.streetevents.comContact Us26 2009 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. 28. FINAL TRANSCRIPTFeb. 04. 2009 / 10:00AM, CTX - Q3 2009 Centex Corporation Earnings Conference Call James McCanless - FTN Equity - Analyst Okay. Second question -- since you are assuming slower absorptions going forward. I think that implies that your lots on hand right now are more like five, six years worth of lots to build out. Where do you want to be on lots in terms of years or is it just an actual number you want to gravitate too? Tim Eller - Centex Corporation - Chairman, CEO Well, historically, we've owned somewhere around one and a half to two-year supply of lots and optioned an equivalent amount. Coming out of these kind of cycles we can shorten up our own position and that's why we look at the number of finished lots that are in the market will be sufficient for us for the next several years and will be able to be fairly asset light coming out of the cycle.So I expect our new owned position -- that is our new acquisitions to be much more heavily weighted around options than owned. Operator We have reached the end of our allotted time for questions. I will now turn the call over to Tim Eller for his closing remarks. Tim Eller - Centex Corporation - Chairman, CEO Thanks, Melinda. And thanks to all of you for joining us today. We look forward to discussing our results with you again during our fourth quarter and year-end conference call in April. Operator This concludes Centex's fiscal year 2009 third quarter earnings conference call. 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