centex Q1 09_Transcript

FINAL TRANSCRIPT

CTX - Q1 2009 Centex Corporation Earnings Conference Call
Event Date/Time: Jul. 30. 2008 / 10:00AM ET

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Jul. 30. 2008 / 10:00AM, CTX - Q1 2009 Centex Corporation Earnings Conference Call

CORPORATE PARTICIPANTS
Tim Eller
Centex Corporation - Chairman & CEO
Cathy Smith
Centex Corporation - EVP & CFO
Matt Moyer
Centex Corporation - VP of IR

CONFERENCE CALL PARTICIPANTS
Ivy Zelman
Zelman & Associates - Analyst
David Goldberg
UBS - Analyst
Nishu Sood
Deutsche Bank - Analyst
Michael Dahl
Credit Suisse - Analyst
Megan McGrath
Lehman Brothers - Analyst
Susan Berliner
JPMorgan Chase & Co. - Analyst
Mike Rehaut
JPMorgan Chase & Co. - Analyst
Ken Zener
McCorey Capital - Analyst
Stephen East
Pali Capital/Pali International - Analyst
Carl Reichardt
Wachovia Securities - Analyst
Joel Locker
FBN Securities - Analyst
Chris Hussey
Goldman Sachs - Analyst
Gary Gordon
Portales Partners - Analyst
Andrew Fenton
Cliffwood Partners - Analyst

PRESENTATION
Operator
Good morning, and welcome to the Centex Corporation fiscal year 2009 first quarter earnings call with senior management.
Today's call will be recorded and transcribed. Today's call will also be simultaneously webcast at ir.centex.com. A copy of today's

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presentation was filed last night with the SEC on Form 8-K. A link to that document is now available on that website.

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) In the interest of time, we will limit each person to one question and one follow-up question. 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, Celeste. Good morning, everyone. Thanks for joining us for the fiscal year 2009 first 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'll start our call today with some introductory comments on the quarter as well as a few thoughts about the months
ahead. Next Cathy will provide details about our financial performance. Then I'll offer some closing comments and we'll take
your questions.

Turning to Slide 3, conditions in the housing markets worsened in the quarter, and we don't see any improvements in market
conditions the remainder of this fiscal year. Foreclosures are rising dramatically in most markets. Employment growth is slowing.
Mortgage interest rates are on the rise, and we're seeing stricter mortgage qualification requirements for homebuyers. Energy
costs have increased substantially for our subcontractors, suppliers, and customers. All of these factors are causing consumer
confidence to erode further. This uncertainty with the consumer is reflected directly in our diminished traffic and sales volumes,
compared to last quarter and a year ago. Our sales team did a great job selling 4,200 homes in the quarter. However, that was
a decrease of 35% from the same quarter last year. Closings for the quarter also dropped about 35% to just over 3,900 homes.

Turning to Slide 4, despite the economic headwinds, we built a strong cash position in the quarter and we expect to maintain
that. We had $1.24 billion in cash on hand at June 30th. We expect positive operating cash flow from home-building operations
for the full year, and we're expecting to further improve our cash position at fiscal year end while also reducing outstanding
debt by another $250 million. I'm comfortable that we have enough cash to manage our medium-term debt maturities and
take advantage of opportunities. In these uncertain conditions, however, maintaining a strong cash position is critical. Accordingly,
we're planning to conservative our cash resources for future flexibility. We're actively evaluating every internal opportunity to
bolster our capital position in this difficult operating environment, including our dividend, though no decisions have been
made at this time.

Turning to Slide 5, we remain focused on asset efficiency and achieving a more flexible land position. Both our historical and
recent experience shows the build-to-order business model results in higher margins, though at the sacrifice of some sales in
the near term. As we continue the transition to the build-to-order lighter asset operating model, unsold inventory declined
again in the quarter, down 23% sequentially, and down 72% over last year. We have made considerable progress in improving
core Centex business processes in purchasing and construction. Despite rising commodity costs, we systematically achieved
overall monthly savings in direct construction costs. Category by category, we're working closely with our trade partners and
suppliers to capture savings. For instance, we reduced our overall cost in the drywall category by more than 5%, despite two
announced 10% material price increases the last six months.


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Turning to Slide 6, we recently announced the Centex Energy Advantage. This is a great example of sustainable innovation that
builds a better Centex. This suite of energy-saving features will be standard on all new homes starting in January 2009. Affordability
is an issue for homebuyers today and energy costs directly impact affordability. Centex Energy Advantage takes direct aim at
making home ownership more affordable. Home buyers' budgets are impacted by the operating costs of a home. New homes
equipped with Centex Energy Advantage features will be up to 22% more energy efficient than comparable new homes built
to the current energy and code requirements and up to 40% more efficient than a typical 10-year old home. The efficiency gains
for each 10,000 homes we build will result in nearly 18,000 fewer metric tons of carbon emissions each year. I believe this
initiative is positive for our customers, our employees, for our shareholders, and for our environment.

To summarize, market conditions worsened in the quarter as a result of a range of economic factors that have dramatically
dampened consumer confidence, which is reflected in our new orders. Still, Centex built a strong cash position in the quarter,
and we expect to improve on that by fiscal year end. Profitability remains our highest focus. And we're taking advantage of the
opportunities to build a better Centex for the long term during this historic housing cycle. With that, I'll turn it over to Cathy to
take us through some of the specifics for the quarter.

Cathy Smith - Centex Corporation - EVP & CFO
Thanks, Tim. And good morning, everyone.

I'm on Slide 7. One of the more noteworthy items of our first quarter is our homebuilding operations were cash-flow positive,
even before the $600 million we received from our tax refund. As far as I can tell, this is the first time we were cash flow positive
from homebuilding in our first quarter and reflects our keen focus on cash and the change in our business processes. We
strengthened our balance sheet and now have a homebuilding net debt to cap ratio below 50%. We continue to generate cash
through asset reductions, both working capital and speculative inventory, and more exciting with regards to the longer-term
implications, we are becoming more asset efficient and more profitable as we transition to a build to order production model.
In the quarter just ended, our gross margins of 11.8% improved 410 basis points sequentially. Our discounts and incentives
came down again this quarter -- specifically, our sales discounts and incentives were 10.5% of the average selling price, down
from 14.3% last quarter, marking the second consecutive sequential decrease. And although our sales for neighborhoods were
down mainly due to lower traffic and the lack of spec sales versus last year, we still reduced our unsold inventory by 23%
sequentially.

We also made good strides toward achieving operational profitability through overhead cost reductions. We reduced our
home-building overhead per closing by 19% year-over-year, and actually lowered SG&A as a percent of revenue by 80 basis
points. Although our homebuilding SG&A was lower, our corporate G&A increased year-over-year. We recognize even in these
unprecedented times, it is important to continue to invest in the future. We have been doing much to centralize processes and
functions, as well as standardize and simplify our business, and some of the associated costs show up in Corp G&A. I'm confident
these investments will enable Centex to have an industry-leading cost structure. I was pleased to see impairments and land-related
charges lower this quarter than the last seven quarters. Sales prices declined only slightly in the quarter and the reductions are
largely contemplated in our impairment analysis.

Additionally in the quarter, we were profitable in our financial services business. We're winding down our retail mortgage
operations. CTX Mortgage will be solely focused on Centex homebuyers. Having a dedicated mortgage operation where we
control the loan approval and underwriting process enables us to sell to homes to a backlog so we can build to a cadence.
Additionally, this structure is one of the key's to our industry-leadership position in customer satisfaction. CTX Mortgage has
adequate committed warehouse lines, and aside from wind-down costs that we are looking to minimize or offset, we expect
financial services business to remain operationally profitable.

We have made a lot of progress again this quarter, although the housing environment continues to struggle. We're doing much
to optimize our business processes and business model to be more efficient and asset light. These efforts are starting to show


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results with improved profitability and asset efficiency. And I am confident the results will be more meaningful in the fiscal year
and beyond.

Slide 8 provides details around the homebuilding operations for the first quarter. We closed 3,939 homes in the quarter, 35%
fewer than last year. The average price of homes closed in the quarter declined 10% to $262,000. This is a lower decline than
experienced over the last couple of quarters. We have evidenced a significant decline in the Southwest of 36%, while central
US and Texas showed year-over-year average sales price increases. Sales units were also down 35% year-over-year. However,
on a per-neighborhood basis, sales were down 23%. As Tim said earlier, traffic slowed more this quarter than any quarter in the
past several years. Consumer confidence is at the lowest level in over 15 years, and is directly affecting volume.

Let me also address a question that I know you'll have. 25% of our closings this quarter used a down payment assistance program.
We know that some portion of these buyers don't need it, but make use of a DPA simply because it is available. We're preparing
for DPAs to come to an end, and frankly, it's probably a good thing over the long term. Our mortgage and title group have
developed a great program that helps our potential homebuyers save the money needed for down payment. The new tax credit
for first-time homebuyers may help with the transition. The end of DPA will probably pressure industry sales in the near term,
but over time, our buyers and the market will adjust. We continue to believe that a return to more normal qualification standards
is a very good thing long term, even if it carries with it a little short-term pain.

Our backlog was actually up from the fourth quarter, and now stands at 8,022 units and $2.05 billion. This marks the first quarter
in three years where our backlog increased sequentially. The right level of backlog will be increasingly important to us. Creating
a sold backlog allows us to build to a cadence. Building to a cadence using standardized business processes yields operating
efficiencies and more predictable results, and developing a backlog through presales is essential for our asset-light business
model. We're moving rapidly in this direction. With the spec unit reduction largely complete, and as we move to the presold
model we expect lower backlog conversion over the next couple of quarters. Today I'm seeing evidence if we sell homes before
construction starts, they have materially higher gross margins. This gives me confidence that as we move to our build-to-order
model, margins should improve.

We have also done a great job reducing our total lot position. We now own 66,766 lots and control just 14,550 lots. This is less
than a four-year supply of total lots -- one of the best positions in the industry. On a pre-tax basis this quarter, we recorded a
total of $80 million in land-related charges, including $50 million in land impairments, $10 million in option walkaway cost, and
$20 million of JV impairments. We impaired 36 neighborhoods this quarter, bringing the total to 384 neighborhoods that we've
impaired at least once. We take a consistent, methodical approach to land valuation. We recognize this is a dynamic environment.
We'll continue to take the same disciplined approach to valuing our assets each quarter.

Along with the impairment analysis, it's 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're still finding that the best answer most of the time is to continue build through our assets,
but you will see that our land held increased this quarter as a result of our evaluation that the best strategy is to hold some land
rather than add more developed lots to the already glutted supply in some markets. Continuing to build to our assets will leave
us with our a leaner balance sheet and an opportunity to add faster-turning higher-producing assets in the future. We also
increased our valuation allowance related to our deferred tax asset by $49 million. In total, the balance of our DTA is $1.02
billion, with a valuation allowance against it of $879 million, or just over $7 per share. This represents over 40% of our current
book value. We'll realize this asset when we see stability and improving environment and a return to profitability.

Let me take a few minutes to review the regional results. Slide 9 details sales and closing by region. In the quarter, we sold 4,215
homes, down 22.5% on a per-neighborhood basis. This is the first quarter where we sell the lower goal of three sales per
neighborhood per month, and we don't expect to achieve that rate this year. As Tim mentioned, foreclosures are still growing
and consumer confidence is waning. Our average neighborhoods were down 16% in the quarter, a rate that will likely accelerate
through the year. Our cancellation rate was similar to last quarter at 30%.


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In our East region, sales were down 21%. While Raleigh-Durham and DC Metro achieved higher sales per neighborhood, Charlotte
and Southern Virginia were down. Texas is slowing, although our central Texas operations are still doing well, with a 10% increase
in total sales and a 26% increase in sales per neighborhood. The Southwest markets, including Phoenix, Las Vegas and Inland
Empire, are impacted the hardest by foreclosures, and sales reflect that. Our Northwest region reversed last quarter's gain with
sales down 35%, illustrating the volatility that happens at the bottom of a cycle. The Bay Area saw sales down almost 50%, but
most of that was due to a big decrease in neighborhoods. Sales per neighborhood in that division, in fact, were up 20%.
Year-over-year closings were down across the board pretty consistently, reflecting the soft market environment and the
reductions in neighborhoods.

Moving to Slide 10, in the first quarter, we improved our balance sheet and liquidity. We ended the quarter with a cash balance
of $1.24 billion, and we're expecting our cash balance to increase by the end of the fiscal year. As I mentioned, our homebuilding
operations were cash flow positive in the quarter, and we're focused on continuing that trend for the remainder of the fiscal
year. In the second quarter we expect to be cash neutral from our homebuilding operations. During the quarter, we proactively
bought back nearly $70 million of senior notes in the open market at a discount to PAR, and reduced our ongoing interest
expense. In the second quarter, we will retire another $150 million of senior notes at maturity, and expect to reduce our joint
venture debt by an additional $70 million. Assuming this happened as planned, our share of joint venture debt will fall to
approximately $90 million by September 30th. At June 30th, we had only 11 JVs with leverage, with our share of that debt
totaling about $166 million. As we said before, we're actively reducing our exposure to JVs with debt and expect our share of
joint venture debt to be about $30 million by fiscal year end. As a result of our strong cash position, we significantly increased
the availability of our bank revolver, and we don't have plans to use the revolver at any point this year.

With the lack of stability in price and volume, it's prudent to conserve and accumulate cash. Along with restoring profitability,
this is a company priority. Consistent with the priorities, we'll continue to scrutinize all uses of cash. Historically, one of the
bigger uses of cash was land development. Of the active lots we own, approximately 50% are fully developed. Given this, we
continue to reduce our development spending to meet the bare minimum of our volume needs and compulsory obligations.
Our sell to a backlog, build to a cadence model helps to better know exactly where and when we need finished lots. Furthermore,
we expect to take advantage of the fully and partially developed lots in most markets using a very cash-light model for the
foreseeable future. In all of our markets, we're actively assets and cataloging future potential land. For this acquisition model
to be effective, we're establishing important relationships now both with developers and capital sources. We have dramatically
reduced our land-spend budget this year to approximately $400 million for the remainder of the year. This gives us confidence
that we'll be cash-flow positive this fiscal year. Additionally, given what we know today, I'm confident we'll remain capital
sufficient and have the necessary cash to service our debt for the foreseeable future.

Turning to Slide 11, I'm comment on what we're doing to restore operational profitability. Gross margins tend to be significantly
higher, cancellation rates and incentives are lower when we sell a home before construction is started. At this stage, we have
92% of our September quarter projected closings already on backlog. This should result in lower costs, lower discounts and
incentives, better predictability, and better asset utilization. In the quarter, we closed fewer spec than in the fourth quarter, and
our gross margin improved sequentially by over 400 basis points. Internal data shows that gross margins on presold homes are
on average 500 basis points higher than those on inventory homes. Our operators and trade partners are working hard to take
advantage of the efficiencies gained in our production cadence model, and this is helping us offset the price increases we're
seeing due to higher commodity and energy costs. Also contributing to expense reduction this quarter, we prepaid some senior
notes, lowered our joint venture debt, and eliminated JVs with maintenance guarantees. This will lower our interest expense
and capital calls that may come with joint ventures, thus giving us more predictable cash flow.

We remain highly focused on overhead cost reductions. Our homebuilding G&A was down 19% per closing in the first quarter.
We expect this trend to continue throughout fiscal year 2009. As mentioned earlier, our corporate G&A line was higher
year-over-year. However, we still expect corporate G&A to be lower this year when compared to last. On a combined basis SG&A
was down 35% year-over-year, and our headcount today is lower than any time in the past seven years. We'll continue to
concentrate our neighborhood footprint. We're exiting some markets, combining some divisions where it makes sense, and
moving out of underperforming assets. These efforts are also part of our path to profitability. We're doing much inside our


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company today to ensure we have a leading cost structure that is sustainable through the cycle. I'll now turn the call back over
to Tim for his concluding remarks.

Thanks, Cathy. As I said earlier, market conditions worsened in the quarter as a result range of negative economic factors such
as higher mortgage interest rates, rising foreclosures, lower employment growth and higher energy costs. We don't expect
these conditions to improve for the rest of this fiscal year. Consumer confidence has weakened. As a result, we experienced
diminished traffic and orders for the quarter. However, we achieved a strong cash position of $1.24 billion at quarter's end, and
we expect to improve on this by year end, even after repaying another $250 million of debt. We're expecting positive cash flow
from homebuilding operations for the fiscal year. At Centex we intend to be capital self-sufficient. Our leadership team at the
entire organization are highly focused on profitability. We're adjusting overhead spending by restructuring divisions and winding
down our retail mortgage network. Incentives and discounts are diminishing. We're building a better Centex by improving our
core business processes. We realize monthly savings in our direct construction costs, despite rising commodity prices. We've
maintained our commitment to executing a simple strategy of selling homes, reducing costs, and generating cash, and that
remains our focus today. And now, Celeste, let's address questions.

QUESTIONS AND ANSWERS
Operator
(OPERATOR INSTRUCTIONS) Please remember that in the interest of time, we must limit everyone to one question and one
followup question. Our first question is from Ivy Zelman with Zelman.

Ivy Zelman - Zelman & Associates - Analyst
Good morning, everyone. I'm glad to see the cash flow better than anticipated. I think people obviously are relieved to see that.
And Cathy -- appreciating your comments on the developed lands or finished lots being 50% of your total portfolio, if you can
help us sort of paint a picture, assuming absorptions continue to be weaker than anticipated and the economy's in a recession,
what happens to land spend in total in fiscal '09? Or as much color as you can give us, sort of a bare-case scenario on why the
company will still generate cash or at least find themselves not, as many people think, going out of business?

Thanks, Ivy for the kind words too. We're 66,000 owned lots, 56% are developed. They're not going to be in exact perfect
locations,as you can imagine, because you can't move finished lots around, but that would be a sufficient amount to accommodate
any reasonable sales pace, I suspect. So we do have sufficient amount of finished, developed lots. And then we did say, as I said
in the call -- or in the prepared remarks, that we expect to spend about $400 million for the remainder of this year. And that's
down about half of what we told you last time, as we continue to scrutinize based on where the volumes are, we'll continue to
address that, but right now expect it to be down around $400 million for the remainder.

If we look out into fiscal year '10, if the conditions continue, we wouldn't expect land spend or development spend to be any
higher than that, in fact probably could actually be less. So we'll continue to reduce our inventories even at reduced sales paces.


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Ivy Zelman - Zelman & Associates - Analyst
And do you think that if your cost initiatives and your to-be-built more profitable margins that you are generating today could
generate enough sales in a market environment where sales are getting worse and we clearly have seen your absorptions fall
from last quarter, maybe because you're doing more to-be-builts, I don't know. But what type of absorption pace in your outlook
could you actually go down to and still generate cash flow? I mean, if you went to three houses in a neighborhood you are at
today, I don't know if that's the right number, but what happens if it goes to one a neighborhood, because you are doing
to-be-builts and not specing anymore? Just some sensitivities around where cash flow is no longer positive, but you are actually
using cash? That would be very helpful.

Think about it this way, Ivy. First of all, to address your volume question as we said, we did fall below three sales per neighborhood
per month and don't expect to reach that level this year given what we're seeing, and I think we're on average closer to 2.5 sales
per neighborhood per month this last quarter. So that will help you -- and then just do average number of neighborhoods, and
that will help you where volumes could possibly be. To address your question around cash, though, we actually -- as we have
done for a number of months and quarters now, we look at every single neighborhood, every quarter to look at incremental
houses built and sold for the cash flow. So we look for its profitability economics as well as its cash flow, and if something is not
cash flow positive, we'll stop building it there, which is what you see as we continue to assess some of our assets each quarter.
So what I guess I'm telling you is that even at fairly low levels we're having to address overhead by combining divisions, but we
still should continue to be cash flow positive from the majority of our homes sold.

Another way to think about it too is based on our neighborhood reviews, which we do every quarter for every neighborhood.
The general market seems to be selling about two homes a month per neighborhood. We have been outselling and outperforming
in many neighborhoods, and so if you just thought that we would drop down to what the market is doing, two per month per
neighborhood may be more practical.

Operator
Your next question is from David Goldberg with UBS.

David Goldberg - UBS - Analyst
Thanks, good morning. And nice job in a tough market.

Thank you.

Guess the -- the first question is really about the discounts and incentives that you guys are offering, and the decline that Tim
mentioned. I guess I'm trying to understand if that was a conscious decision? And how you think about the level of discount
that you are offering versus your competitors, and what that is doing to the sales base?


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Well, we -- early on, if you remember back even in the March quarter talked about transparent pricing, which is pricing to what
is affordable for our customers. That's our pricing strategy. We price to the affordability levels of our customers, so as -- the
affordability level changes for those customers, that could impact price. We do offer some small discounts in addition to that,
but it's primarily around financing incentives, and that kind of thing, generally less than 5% of revenue on discounts. So I think
our transparent pricing allowed us to sell -- probably outsell the market for the last six months, and -- the early part of this year,
and most everybody is starting to do the same, so we're probably becoming more like the market. Affordability is an issue.
Energy costs are a factor. They may not have baked themselves completely in to the affordability equation yet. We are continuing
to look at in our neighborhood reviews, how we are priced in every neighborhood every quarter.

I guess what I'm trying to understand is on a like-like basis, where are you pricing relative to the competition, do you think,
given that you guys maybe have a slower starting price with the transparent pricing, but then are offering less discounts? Do
you think it's fairly competitive? You guys are fairly in line?

Absolutely, we take all of that in to consideration and factor in all of the discounts. We're not going to try to chase somebody
who is generating a lot of sales with a neighborhood or a market-wide, say, sale over a weekend or something like that, and
we're not trying to chase foreclosures. We're trying to take a very thoughtful approach to pricing and focus on affordability.

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

Nishu Sood - Deutsche Bank - Analyst
Thanks, good morning, everyone.

Good morning.

Good morning.

I want to follow up on the land spend issue, the $400 million that you are going to be spending on development this year,
obviously down a lot from what you had said previously. I wanted to dig down -- obviously in this environment, where pricing
makes it difficult in many cases to even recover your development costs -- I mean, in extreme cases it's tough to recover any
land residual value. Trying to understand the kind of criteria you are applying as you evaluate your land spend in terms of -- I
think the word you were using was necessary, Cathy. Let's say if it is in the back end of a subdivision, if it's in later phases, I would
imagine you don't want to leave that undeveloped as opposed to a completely raw piece of dirt. You could padlock it and take


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the carrying costs on it. I want to understand the kind of criteria you are applying there, and also a sense of how low could that
number go if you just completely eliminated anything that wasn't necessary operationally?

Back to the neighborhood reviews, Tim mentioned that we do every single quarter on every neighborhood. Part of that review
that we do is incremental spend. So we look at their finished lot supply and partially developed lot supply in that neighborhood
and their sales pace. And as part of that assessment, we'll say do we -- and if they are proposing some additional incremental
spend to complete some lots, we'll look at the cash-flow criteria of the home sold with that incremental spend included. To
your point, I think it's a good one -- that you have to be very thoughtful about where you want to put additional dollars into
development these days because you may not be able to recover it. We think we have a pretty methodical approach to that,
so we are fairly confident that as we put additional dollars into the land, it is recoverable and it makes a lot of sense on an
earnings and a cash basis. That's just to help you understand kind of the criteria we use.

Just to be clear on the $400 million that we talked about for the remainder of the year, that's acquisition and development. It
is primarily development, but there is some acquisition explained in there too. And then lastly, my only other point would be,
you have to think about some markets like Texas, for example, where we talked about central Texas having year-over-year
increases on a sales-per neighborhood basis as well as the price. They are still doing really quite well. It's absolutely prudent to
continue to put some lots on the ground there. So that is also what's contributing, because we have in raw numbers, the absolute
number of finished lots is sufficient, it's not in the right places in all cases.

Got it. And just a second follow-up question, you mentioned something -- something interesting in your mortgage operation.
Obviously dealing with the loss of the down payment assistance, coming up with ways to help people come up with a down
payment. You mentioned the homebuyer tax credit. Is there some way that you folks are working on to link the two, maybe an
advance against some type of refund that they might get to help them with the down payment?

We are. And we don't have a solution to that yet, but we're looking at ways to monetize that tax credit early. And we're hopeful
that we'll be able to do that certainly as we get closer to the end of the tax year.

Operator
Our next question is from Dan Oppenheim with Credit Suisse.

Michael Dahl - Credit Suisse - Analyst
Hi, this is actually Mike on for Dan. Just wondering could you give us some more details on what went in to the reserves and
restructuring expenses we saw in corporate G&A this quarter? And what type of benefit you would expect to come from those
actions?

Sure. The -- our corporate G&A was up about $14 million year-over-year. And it's really kind of equally weighted between three
things, some reserves, some cost associated with centralizing functions, and then costs associated with investing into our future


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as we think about our business process changes. The reserves -- in these kinds of times, with where we are in the housing
industry, it just -- we thought it was prudent to make that sure we continue to address reserves for possibly unhappy employees
and/or homeowners or something, so we took that opportunity to increase reserves a little bit. On the centralizing functions
piece, if you think about it we have been talking -- it is smaller, but a great example, talking about centralizing accounting shared
services, so we went from profiting transactions in 45 locations, and now they are all centrally located. Those are the kinds of
costs now starting to show up in our corporate G&A line, so that's associated with centralizing functions. And the last one is
investing in our future. This is really us as well as using some third-party resources. Really addressing our core Centex business
processes to make sure those are optimal, so those costs are now showing up in corporate G&A as well. To remind you on a
combined basis, though, if you look at homebuilding and corporate SG&A, we were down 35% year-over-year, and corporate
G&A is expected to be down year-over-year at the end of the year.

Michael Dahl - Credit Suisse - Analyst
Okay. Thanks. And just a follow-up on -- going off the whole shift to the build-to order model. As you continue in that transition,
how do you plan on competing with -- clearly not all builders are taking the same approach, but how do you compete with the
spec homes offered by competitors, and how are you viewing that spec inventory that's out there?

Well, we will end up with some spec inventory ourselves through cancellations, but it will be a very manageable amount. And
we don't look at -- we don't believe that we'll need to incentivize those heavily to get those sold. We find that our homebuyers
are continuing to sell, very pleased with the notion and the process of building a home. They are more satisfied. Our margins
are higher. We make more money. It's more predictable, and we think our costs be will lower overall as we sell to a backlog and
then build to a cadence from that backlog. It's really a business model decision that we feel confident we'll be able to execute.
We're not going to be able to compete with builders who dump speck on the market -- that happens from time to time, but it's
largely isolated now. Very few builders are building specs today to drive volume. It's just not a prudent approach.

Operator
Your next question comes from Megan McGrath with Lehman Brothers.

Megan McGrath - Lehman Brothers - Analyst
Hi, thanks. Wanted to follow up on that last point a little bit in terms of slowdown in your traffic this quarter. Do you think any
of that is due to the fact you have reduced your incentives? And how are you handing that in terms of marketing your product
and getting more people in the door?

Well, we don't think it has anything to do with reduced incentives, because we sold extremely well with that model earlier on.
So we think it's just a combination of things. Other builders moving towards that model, which is transparent pricing. Combination
of consumer confidence erosion, and probably the transition to the build-to-order model from a much heavier spec position,
so a combination of things this summer. We'll see where we settle out in terms of sales pace. As I said, I think the market is selling
generally in most places about two homes per month per neighborhood. We're still doing a little bit better than that, but it
would -- it may be entirely possible that we're going to sell relative to a market cadence in the future here.


FINAL TRANSCRIPT

Megan McGrath - Lehman Brothers - Analyst
Okay. Thank. And then Cathy, just a fix follow-up on the financial services business. You mentioned exiting the retail arm of that
business. Can you give us any sense on timing there? And any potential costs that might come up from that?

It will happen throughout the course of our fiscal year. It will take a little bit of time to wind that down, and then we'll provide
an estimate of the cost as we're trying to solidify that in our Q most likely. But we are trying to offset and minimize those
winddown costs, the one time winddown costs.

Operator
Your next is from the line of Susan Berliner with JPMorgan.

Susan Berliner - JPMorgan Chase & Co. - Analyst
Good morning. Sorry about that. A couple of, I guess housekeeping questions. Can you tell me what your availability is on your
bank line?

It will be in the Q.

It will be in the Q. Prior to the cash forward feature, we're fairly significantly available, but then we'll have to address with the
cash forward feature.

Okay. I guess I was a little unclear, the $400 million you are spending. That's not for the year. You spent some this quarter I
assume as well?

Right. $400 million for the remainder of the year.

Can you tell us what you spent this past quarter?

Just a second, Matt or Mark is going to help me with that. I think I know, but I would rather make sure I'm right.


FINAL TRANSCRIPT

Let's move on to the next question and then we'll come back and answer that one.

Operator
(OPERATOR INSTRUCTIONS) Your next question comes from the line of Mike Rehaut with JPMorgan.

Mike Rehaut - JPMorgan Chase & Co. - Analyst
Hi, thanks, good morning.

Good morning.

Good morning, Mike.

First question, just about the down payment assistance. Appreciate you giving out the number there, and just trying to get a
sense if you have any data in terms of where the DPA is most prominent, and if you've seen some of those houses -- and if you
know what the -- that 25% number was last quarter, and maybe a year ago?

Yes, hey, Mike. DPA is really used in most of our markets. It is more heavily concentrated in some, which I think others have said
too, which is like Texas is the one that stands out in my mind. But it is used in pretty much all of our markets. Yes, bigger ones
would be -- like I said -- Texas, Las Vegas.

The more affordable markets.

I'm sorry. Do you have a sense of what that 25% was a quarter ago and a year ago?

That's probably less because it's associated with FHA mortgages. Our FHA utilization has gone up steadily for the past 18 months,
so it generally runs about a third to a half of the FHA loans that we originate.


FINAL TRANSCRIPT

We looked at that statistic for like four years, and it was very consistent, the percentage of DPAs of the FHA. The difference is
FHA volume has gone up so much, as Tim said.

Matt Moyer - Centex Corporation - VP of IR
Right. You can imagine several years ago it was a very small amount. FHA was a very small amount.

Operator
Our next question comes from the line of Ken Zener with [McCorey Capital].

Ken Zener - McCorey Capital - Analyst
Good morning.

Good morning, Ken.

I'm interested -- your units -- could you give the number for your units under construction as well as your unsold spec count?
And I'm interested to see how those change, so in the absence of large unit declines affected your order rates that you saw in
the quarter?

Our inventory came in at 1,356 units at the end of the quarter, down from 1,754 at the fourth quarter, and 4,815 a year ago in
the first quarter.

Unsold, right?

That's unsold inventory. Homes under construction was essentially flat with fourth quarter at 7,349, including the model homes,
versus 7,324 in the fourth quarter of '08, and 14,167 a year ago.

Do you guys think it's kind of the stabilization, which is good -- of your units under construction which led to that larger decline
in orders?


FINAL TRANSCRIPT

I think it's a transition. It's -- again, we have transisted in a number of markets from building specs to preselling, and so that
transition takes a bit of different behaviors. But it's happening and it's manageable, and like I say, we also expect that with our
pricing strategy and our pricing model, focused on affordability. Not trying to chase foreclosures, not trying to chase others
who are trying to generate cash out of a particular neighborhood has also some impact as well. We -- and again, if you look at
our sales the past 12 months, we have generally been outselling the market, and I think we're probably kind of approaching
more market-like sales right now.

Operator
Our next question comes from the line of Stephen East with Pali Capital.

Stephen East - Pali Capital/Pali International - Analyst
Good morning.

Good morning.

Going back to the cash flow one more time, Cathy. If 50% of your lots are done -- are finished, if you look at what you expect to
deliver in '09 and 2010 fiscal years, what percentage would you estimate are actually completed versus what you are going to
have to put money into?

Let me make sure I understand what you are asking, Stephen. So out of our finished lots, how many of those are we actually
going to utilize based on '09 and '10?

Exactly. You made a comment earlier that obviously you can't move some of them around, so you are going to have to invest.
I'm just trying to get an idea of if you look, what you have on the board for this year and next.

Stephen based on -- as we go through each neighborhood we make those determinations in terms of what we're going to
invest and when we are going to invest it. And right now we're finding very little additional investment necessary. A lot of what
our land development spend is right now is related to the houses we have under construction. It's completing sidewalks, and
drive aprons and final lifts of streets and that kind of thing. So it is really kind of part and parcel of completing the infrastructure,
as we complete the homes.


FINAL TRANSCRIPT

Okay. And then also staying on that, if you look at your cash -- I know in some markets, you're -- and getting close to cash
construction costs, et cetera. If you look across all of your closings, though, what type of cash are you generating per household
-- per home sold right now?

It's about -- just do an adjusted finished lot cost or a home-site cost, and that -- good rough average is around $60,000 to $65,000
per unit.

Operator
Our next question comes from the line of Carl Reichardt with Wachovia.

Carl Reichardt - Wachovia Securities - Analyst
Hey, guys, how are you.

Hi, Carl.

Just following up on Steve's question a different way. If 50% of your lots are finished, that includes lots where homes are in the
air, or it doesn't?

No, it does not.

Okay. Doesn't. So what would be the budget -- to get the lots that aren't finished up to finished whenever you do it, what would
be the estimated cost to do that?

Oh, gosh, Stephen --

Carl.


FINAL TRANSCRIPT

Carl. Sorry. Stephen was before you. Sorry. Carl. As we talked about, we expect about $400 million of additional spend for the
remainder of this year. And as Tim said, much of that cost is really associated with homes that are already kind of under
construction with things like HOA deficit spending and stuff. The partially developed lots which are another 30% or 35% or so
-- have -- will run out of the course of the next several years based on the volumes. And as Tim said, we could be lower next
year in spending than we are this year if volumes stay around where they are. So I guess my -- not a great answer but a roundabout
way is it's going to be decreasing and it's not a large amount of dollars every subsequent year going forward.

Okay. I'm just trying -- last question, could you give me a sense maybe over the course of the last six months or so, maybe year,
the two markets where you think you have gained the most share from an MSA perspective? And whether or not you have seen
any benefits from that over the course of the last six or 12 months from a cost perspective or some other way?

We're seeing the benefits on our cost initiatives more around our processes. Standardizing our processes, and moving towards
our build-to-order model is proving to create a lot of efficiencies in terms of how schedule our subcontractor suppliers. That's
what enabled us, for example, to lower our overall drywall cost nationwide, despite those two announced price increases. So
it's much more around processes right now than it is around share. In terms of share, we're -- I think it's safe to say we're growing
share in most every market that we're focused on, and we have determined that we're going to participate in the future. So --
and I would say probably in our central Texas and San Antonio markets is probably where we have increased the most share
recently.

Carl, this is Matt. I would say what comes to my mind is the markets that had sizable private builders, certainly. So some of the
Midwest markets, DC, certainly our business in the Carolinas, because of our dominant market-share position throughout those
-- North and South Carolina has probably grown nicely. So that's how I would characterize it without exactly knowing the
numbers.

Let me answer Sue Berliner's question earlier about how much land spend did we incur in the first quarter. We don't have the
exact number in front of us, but it's somewhere between $80 million and $100 million. We can get you a better answer later.

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

Joel Locker - FBN Securities - Analyst
Just wanted to talk to you about your backlog conversion a little bit. Just saw it was down, I think 6% year-over-year, and that's
the first decrease in about 10 years. And would you expect that with the build-to-order model going into full implementation.
But just wanted to see if that was going to be the trend going forward, or the same decline year-over-year?


FINAL TRANSCRIPT

This is Matt, Joel. I think it will show some seasonality, but you should continue certainly throughout this year to see lower
backlog conversion because of the lack of --

Joel Locker - FBN Securities - Analyst
I'm just saying versus, say, the second quarter was 67% last year, you might see another down 6% there where it's only 60% or
61% or something like that. Just like you did in the first quarter, versus 57% last year where it came in 51% this year.

It sounds a tricky way to get me to tell you what closings are going to be in the second quarter. But I do think it will be down
both year-over-year. It may even be down a little sequentially. At some point, we're not going to lower specs much more than
they are. They are already lower than at any point on record that I can find. And there is some level of spec with cancellation
and things. So I would say that -- lower year-over-year, maybe even a little sequentially.

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

Chris Hussey - Goldman Sachs - Analyst
Hi, guys. Thanks for taking my call. The question I have -- two questions. One is around your land spend. If you spent about $500
million this year, how big a company are you? You are running, looks like maybe 16,000 to 20,000 homes a year, which would
put that spend to $25,000 to $30,000 per home for land spend. So how much of that $500 million is new lots for future sales
and how much is for these? Because that seems -- I don't know, that seems like a lot of money.

Think about it this way too, our land spend over the course -- it peaked at about $4.5 billion, down to $3.5 billion to $3.2 billion,
down to $1.7 billion last year, down to roughly $0.5 billion this year. It has come down very dramatically, and then as Tim
suggested, given pace and volume, we could be down even lower again next year. So it has come down dramatically. You also
have to remember that although we're trying to time our land development to exactly our lot need based on our cadence, we're
not perfect yet, and we're getting there. So you don't perfectly develop your lots just in time of need. So some of that development
spend is for future lots, and some compulsory obligations as well as to complete the existing neighborhoods. So what I'm trying
to tell you is it's not perfectly timed.

Chris Hussey - Goldman Sachs - Analyst
I hear you, I'm just trying to get around, though -- we're getting towards -- I would say most people would agree a pretty
reasonably bad market for the housing market right now. So one would expect you guys not to be investing much in land. But
when you have say you have 50% of your lots are finished lots, in a finished lot, how much investment do you have to make in
that lot in order to sell the house?


FINAL TRANSCRIPT

Well, you may have the infrastructure to complete the final lift of payment. Perhaps offsite improvements to complete. We want
to release our bonds, so we're very cognizant about doing that. Right now it's going to take -- we have developed a lot of
property over the past five years, a lot of it -- and actually last couple of years. So a lot of it still has bonds associated it with that
we want to get released. A lot of it is just around getting our previously developed properties released from the bonding, and
well as completing the infrastructure for houses under construction. There's not too much, really, going into new lots and new
land. And it's entirely possible we'll come in less than $500 million too if the market continues to deteriorate.

Chris, the only thing I would add is if you remember three or four years ago, probably 90% of our lot supply was coming in raw,
and needed to be fully developed. Whereas moving to the asset-light model and optioning more finished lots, I would expect
that number to decrease. So even as we move back to the -- 20,000 to 30,000 to 40,000 units that we were doing in the past, as
we move up to that, you should expect much less land spend than we had in the past.

Operator
Our next question comes from Gary Gordon with Portales Partners.

Gary Gordon - Portales Partners - Analyst
Thank you. Two questions. One, practical. What was your cancellation rate in the quarter?

About the same as last last quarter. Around 30%.

Gary Gordon - Portales Partners - Analyst
Okay. Thanks. Two, on your new business model, I would assume -- and your numbers about land spend I would assume you
are not really a bidder for bank-foreclosed properties that should obviously be growing in volume. Is that the case? And two,
could that potentially put you at competitive risk if some of your peers are much more active buyers of that land?

We are bidders. We're in the market right now. We're actively seeking developed lots in many of our markets where we are in
shorter lot positions. So it's not determined yet how the banks will come up to the market with the properties. We are able to
do acquisitions on takedowns with terms in some cases. We haven't really seen bulk sales of land by banks yet. We're working
with other partners and teaming up with other providers and developers in terms of looking at some properties. We have our
Corona transaction that we did in partnership with Farallon and RSF Partners that is available to us as well to look at new
properties. We think we have right now enough oars in the water, if you will, to be participating in the land market -- which I
think for all practical purposes we won't see materialize until next calendar year, calendar year 2009.

Operator
Our next question comes from Andrew Fenton with Cliffwood Partners.


FINAL TRANSCRIPT

Andrew Fenton - Cliffwood Partners - Analyst
Good morning. How was traffic in July versus a year ago, and also versus June?

We don't normally comment on beyond the quarter, so we're not going to help with July. But we talked about traffic being
down really some of the lowest levels we've seen this last quarter.

Andrew Fenton - Cliffwood Partners - Analyst
In percentage terms? 40%? 50%?

Quarter over quarter, it was down about 45%.

40.7% in the quarter.

I'm corrected. 40%.

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.

Thanks, Celeste. And thanks to all of you for joining us today. If you have any additional questions, please don't hesitate to
contact Cathy, Matt, or myself. We look forward to discussing our progress during our second quarter conference call later this
fall.

Operator
This concludes Centex's fiscal year 2009 first quarter earnings conference call. Thank you for your participation.


FINAL TRANSCRIPT

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