Good morning. My name is Katherine, and I will be your conference operator today. At this time I would like to welcome everyone to the D.R. Horton, Inc. America's Builder First Quarter 2009 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Don Tomnitz, President and CEO, you may begin.

Thank you, and good morning. Joining me this morning are; Bill Wheat, Executive Vice President and Chief Financial Officer and Stacey Dwyer, Executive Vice President and Treasurer. Before we get started, Stacey.

Some comments made on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton’s annual report on Form 10-K which was filed with the Securities and Exchange Commission. Don?

Net sales orders for the first quarter ended December 31, 2008, were 2,777 homes. $568 million compared to 5,245 homes, $926 million in the year ago quarter. Our average sales price on net sales orders in the quarter was $204,400 compared $218,200 from the year ago quarter. And our cancellation rate was 38%. Our first quarter home sales revenues were $886 million, 4,068 homes compared to $1.6 billion, 6,549 homes in the year ago quarter. Our average closing price for the quarter was $217,700 compared to $245,200 in the year ago quarter. Stacey?

Our gross profit margin on home sales revenue in the first quarter before inventory impairments and land option write-offs was 15.5%. This was 120 basis points increase from our home sales margin in the year ago period. 170 basis points of the margin increase was due to the average cost of our homes declining by more than our average sales prices caused by a greater portion of our closings occurring in our south central region and the effect of prior inventory impairment on homes closed during the quarter. Also contributing 50 basis points to the margin increase was a reduction in our estimated cost to complete for certain development projects. Partially offsetting the gross margin increase was the recognition of last previously deferred gross profit, and FAS 66 during the current quarter than in the year-ago quarter. Bill?

During our first quarter impairment analysis, we reviewed all projects in the company and determined that projects with the combined carrying value of $1.4 billion had indicators of potential impairment. We evaluated these projects and determined that projects with a pre-impairment carrying value of $212 million were impaired. We recorded inventory impairments of $55 million as a charge to cost of sales to reduce the carrying value of these impaired projects. The majority of these charges related to projects in our west region. Of the remaining $1.2 billion of evaluated projects which were not impaired, approximately half are located in Florida, California and Texas. We also recorded $1 million in write-offs of earnest money deposits and pre-acquisition costs related to land option contracts that we do not intend to pursue. Don?

Homebuilding SG&A expense for the quarter was $127 million compared to $213 million in the year ago quarter, a reduction of $86 million, or 40%. We have and we will continue to actively manage our SG&A levels relative to our expected number of home closings. We recorded $25.6 million in interest expense during the quarter. As we continue to reduce our residential inventory and our development activity, our active inventory declined relative to our homebuilding debt level this quarter. So we expensed more of our homebuilding interest occured. Bill?

Financial services pre-tax loss for the quarter was $2.9 million, compared to pre-tax income of $6.9 million in the year ago quarter. A primary factor that contributed to this loss was a $5.1 million decrease in revenues due to the current quarter effect of SEC's staff accounting rules in number 109, which changed the way revenues on mortgage loan sales are recorded, 89% of our mortgage company’s business was captive during the quarter. And in the quarter, our company-wide capture rate was approximately 65%, our average FICO score was 712, and our average combined loan to value was 92%. Our product mix in the quarter was essentially 100% agency eligible with government loans accounting for 65% of our volume. Stacey?

We received a federal income-tax refund of $621.7 million in December of 2008. We expect to receive the remainder of our income tax receivable currently estimated to be $55 million in our fourth fiscal quarter. Our net remaining deferred tax assets of $213.5 million are expected to be realized through net operating loss carry back to tax year 2007 based on projected tax losses to be incurred in fiscal 2009. We expect this will result in an additional tax refund in the first quarter of fiscal 2010. Our reported net loss for the quarter was $62.6 million or $0.20 per share compared to a net loss of $128.8 million or $0.41 per share in the prior year quarter. Excluding current quarter charges, our homebuilding operations were close to breakeven this quarter. Don?

Our overall inventory decreased by approximately $200 million during the quarter. We reduced our total number of homes in inventory to approximately 10,700 units, down 14% from September. We also reduced the number of speculative homes in inventory to approximately 6200 homes of which 3300 were completed. We plan to continue to adjust both our total number of homes and inventory and our number of speculative homes in the coming quarters to match current and future demand. Our land and lot acquisitions spending remains limited and we continue to reevaluate our land development plans based on current sales trends. We expect to spend less than $500 million in fiscal 2009 on land and lot acquisition and land development expenditure. Bill?

Our supply of owned land at December 31, 2008, was approximately 97,000 lots, down 32% from year ago. Our 97,000 owned lots represent a 4 year supply based on trailing 12 month closings. We plan to continue to reduce our own land and lot supply in line with our expectations for future home sales and closings. We control an additional 22,000 lots through option contracts, which includes 6800 lots for which we do not expect to exercise our option, but the contract has not yet been terminated. Our net earnest money deposit balance at December 31 was approximately $23.2 million on a net remaining purchase price of $419.4 million. We have no unconsolidated joint ventures and we rarely use land bank arrangements, so our deposits are typically a low percentage of the purchase price. Don?

Our income tax refund combined with our reduction on homebuilding inventory and mortgage loans held for sale helped us generate $818 million in operating cash flow in the quarter. We have generated positive cash flow in each of the past 10 consecutive quarters for a total of $4.9 billion. We plan to continue to generate positive operating cash flow for the remainder of fiscal 2009 in addition to any income tax refunds. We utilized $278 million to repay debt during the quarter resulting in $1.9 billion cash balance at December 31st, Stacy?

At December 31st, our homebuilding leverage ratio net of cash was 35.5% well within our target operating range of less than 45%. We had no cash borrowings outstanding on our homebuilding revolver at quarter end. As a result of the inventory reductions we achieved during the past two quarters, our borrowing base availability as of December 31st was $15.1 million. We expect that our availability next quarter will increase as our outstanding debt would have been reduced by our notes that we repaid in January and February totaling $460 million. This increase will be offset by the effects of any inventory reductions next quarter. With our substantial cash balance and our planned additional positive cash flows from operation, we currently do not anticipate a need to borrow from our revolver during fiscal 2009. We were in compliance with all of our homebuilding covenants at December 31st. We had a cushion of approximately $560 million on our tangible net worth covenant. And our leverage calculation under the facility was 44% at December 31st compared to our maximum allowable leverage at 55%. Don?

In conclusion our industry continues to face many challenges, higher levels of both new and existing inventory, increasing foreclosures, tight credit for our homebuyers, low consumer confidence, increasing unemployment and continued pricing pressure. However, in spite of these headwinds facing our industry, D.R. Horton is in a solid position to weather this downturn and be in a preeminent position to capitalize on the eventual housing recovery. Our balance sheet is the strongest that has ever been as reflected on our cash balance of $1.9 billion and our improved net homebuilding leverage at 35.5%. We will continue to reduce our own land and lot positions. We will continue to adjust our homes and inventory to meet current and future demand levels. We will continue to focus on returning to profitability by re-positioning our product and targeting the entry level homebuyer; aggressively reducing our SG&A cost and continuing to negotiate lower construction costs. We would like to once again thank our DHI team for their efforts and for their perseverance through this difficult housing environment. We continue to outperform the competition especially in the key areas: sales, closing, SG&A, free cash flow and leverage. D.R. and I continue to spend 90% of our time on the road with you, in your divisions and in your sub-divisions. We extend our heartfelt appreciation for an exceptional quarterly performance and look forward to continued improvements in the quarter ahead. We were close to breakeven in Q1 and leave no doubt, our goal is to achieve breakeven and return DHI to profitability. This concludes our prepared remarks. Now, we will host any questions.

(Operator Instructions). And the first question is from Michael Rehaut from JP Morgan. Your line is open.

Hi. Thanks, good morning everyone.

Good morning.

First question just on spec and orders during the past quarter, you continue to do great reducing your homes under construction and total specs, but the completed specs are now up for a couple of quarters to, I guess from 2900 a couple of quarters ago now to 33. So just wanted to know what's going on there and obviously it's still a huge focus. What your goal for that number might be and if the orders are still being down in the mid-30s despite an easier comp in 1Q '08 that you faced, kind of a lower than expected orders had anything to do with that.

Well first of all let me be frank, our decrease in orders, we're very proud of relative to the competition. It's not a figure that I would ever say I thought I would be proud of in the past, but relative to our competition, Mike, it certainly has an outstanding performance. Secondly, we continue to have the right number of specs available in our sub-divisions to meet the buyers who are coming in who are moving out of an apartment and have the down payment and/or who have sold their home. We do have a concentration in a limited number of subdivisions and limited number of divisions where we have completed homes that we have had more difficulty moving than we thought. Our focus is to make certain that those limited number of subdivisions move those specs before fiscal year-end. And to answer your question in terms of completed specs, I think the number of completed specs needs to be down somewhere around 25% or 30% range as opposed to 50% range where it currently is, and that's our goal by fiscal year-end.

Okay. Great. Thanks. And second question, if you could just comment on some of the variation quarter-to-quarter for 4Q '08 year-over-year versus 1Q '09, there are a couple of segments that kind of flip-flop positive to negative. The Midwest was slightly positive in 4Q and then you had a bigger drop in 1Q '09. Conversely, the west last quarter was up about 20% year-over-year, now it's down against actually an easier comp. I was wondering if you could kind of give us some more granularity on the regional trends?

Well, I think the Midwest currently is clearly in a weaker position. Our sales in two of our key markets up there, both Chicago and Minneapolis have been weaker than we anticipated. Some of that may be due to the extraordinary, I don’t want to give you a weather report, but it has been a little frosty up there this year and I don’t think a lot of people are out looking for homes at 20 below in Minneapolis or 10 below in Chicago. California, which is our west, I think California is still struggling. Although, I will tell you from my perspective after having spent 10 days out there two weeks ago, I think California for us should produce better in the future. One of the things I noticed that our sales prices are at foreclosure pricing or slightly above, and I think we are better priced in California today than we ever have been, and I think that's been a recent phenomena which should be reflective in future quarters.

Our next question is from Nishu Sood from Deutsche Bank. Your line is open.

Hi, this is Rob Hansen on for Nishu actually.

Good Morning.

Recently, we heard about a promotional event in Las Vegas skewed towards, competing with REOs or what not. And I just wanted to see if you can tell us a little bit about the event, how successful it was, and if you would be looking to implement that as a promotion in other hard-hit areas, like Southern California or Phoenix?

Well, all of our promotional events, obviously, are available to our other regional presidents and divisional presidents. And frankly, what we had in Las Vegas was, we clearly took $33 million worth of impairments in the quarter in Las Vegas. So, we positioned ourselves in January to take advantage of those impairments and to reduce our inventory in Las Vegas. Frankly, we had more specs in Las Vegas than our trailing 13 week sales indicated we should have. We had obviously used a Hollywood character as our spokesperson or basically we used him as our billboard person. And I think it was very effective. I happened to be out there with our Division President, Jim Frasure on Saturday. And driving to some divisions and we had a tremendous amount of energy and a tremendous amount of traffic generated by this. So, to the extent that it was successful as it was, we probably will use it in some other areas. But that’s up to the respective regional Presidents.

Alright, great. And given how aggressive you have been in taking advantage of the potential tax refunds. If the look back period was changed, would this cause another big year in terms of cash flow generation?

If the carry back period is expanded to beyond the two-year current period, it would open up more potential carry back available to us for tax losses. And, however, we would have to generate additional tax losses in order to take advantage of that. Given our current cash position, given where we currently are on our balance sheet, I am not sure that you would see any major change in any of our activities, but it would provide some additional flexibility in analyzing any individual projects that we want to sell anyway. So, we are not definitely going to be forecasting any major changes in land sales, if the tax law changes, but it would provide some additional capital for any sale that we do accomplish this year.

And the next question is from Dan Oppenheim from Credit Suisse. Your line is open.

Thanks very much. I was wondering if you can talk about your view in debt maturities, if you look out to 2010, would you think about repurchasing some of those maturities during this year?

Frankly, what we are focused on now Dan, are maturities which are maturing. Clearly our other side of the issue is, is that we believe now is the great time to preserve our cash and continue to build our cash reserves. So, our focus is to meet our current debt maturities and to continue to increase our cash position.

Great, thanks. In terms of looking at land, it seems some other companies formed ventures to do that in the past year, was certainly not going with the joint venture structure. As you think about sort of the capital constraint environment, and going forward what you think about doing and finding some sort of structure that could work for Horton that you think about?

We are clearly focused on our strategy going forward and we are going to be an asset-like builder moving forward. And we are at frankly keeping our plans to ourselves and not again lot of smoke and mirror statements about what we are going to do in the future.

And the next question is from Megan McGrath from Barclays Capital. Your line is open.

Thanks. Hi, good morning.

Good morning.

Just wanted to follow-up a little on what you said about the order trends. You are proud of your number all things considered. And we have heard from some other builders that trends throughout the quarter and even into January, changed pretty significantly as the quarter went on. I don't know if that was the same for you and if you could comment on that?

Megan, what we basically saw during the quarter is stable sales in each of the month, and what we have seen in January is a seasonal pick up in terms of absolute number of sales. The percentage decline that we experienced in the December quarter is pretty consistent with what we continue to see in January.

Okay, so on a seasonal basis pretty similar.

Yes.

Okay.

With an absolute increase in the number of homes sold.

Okay, thanks. And just a quick modeling question, I wanted to follow-up on what you said on the financial services segment. You said there was a decline in revenue due to an accounting mix. I assume that's behind the operating margin change and what should we kind of look for going forward just to help us out there.

The change, Megan, is essentially in how we recognize the service release premium and SAB 109 changes, that you recognize at this point of time is lost or originated, rather than when we actually sell the loan to a third party. So what you have seen is the change in the absolute level of the service release premium and the decline in the number of homes that we held for sale from September to December. In terms of modeling, it's going to be based on the current service release premium and the level of homes that we have mortgages lot or which we hold the mortgage for sale. And it will probably change relative to the homebuilders closing. It's probably the easiest way to look at modeling it.

Volume and the changes of the interest rate environment will also impact it. The declining interest rate environment, you will typically see a hit against revenue, in a rising interest rate environment, you would probably see some level of pick up against revenues. And just back to your sales number, notwithstanding the fact that it is a seasonal increase. We are very proud of our sales in January so far, because it could have been a lot worse given where the economy is and the unemployment is, so we are very proud of our sales in January.

And the next question is from Kenneth Zener from Macquarie. Your line is open.

Good morning.

Good morning.

Just wanted to follow-up with some of your comments without the reliance on spec sales last quarter, and obviously while you are declining your overall units in spec, still rising as a percent of backlog. And you guys said you were comfortable with that simply because you gain the incremental sales and the cancellation rates were lower. Has that position actually increased, now that you are actually improving your gross margin, are you more interested in specs even though you are bringing down the overall spec count?

I would say that the specs will continue to be a core part of our operations. As we look at specs as a percentage of our inventory, they are probably still higher than we would like, so our target would be to work that back down closer to the 40% range in total inventory, but we have historically always built specs. We think that does give us the competitive advantage right now in terms of having inventory available to compete with resale. And I think you will see us continue to start limited specs.

And the margin that we are seeing between the specs and units you are selling at a backlog, is that still pretty similar, or is there 300, 400 basis points spread there?

I would say to you that our specs do have a better margin than our inventory. It should have a better margin than our inventory, but because of the fact that we are taking advantage of lower cost, I'm seeing some people shaking their head so, let the accounting speak, alright?

In general the specs, we are pricing our homes to the extent that someone is buying a spec and closing it in a short period of time, we certainly have more predictability as to what the margin is going to be, but overall when we are building our homes and setting the pricing for our home, there is not a significant difference between the margin levels, on our specs and the rest of our inventory. To the extent that our spec becomes completed and we are then more motivated to move that spec, that you will see generally more incentives on that inventory.

And really to what Don was saying as well, homes that we are building today have a significantly reduced cost basis than homes that were started six months or even 12 months ago. So, spec sthat we start today may turn out to be very competitive with the build job that was started three months ago.

And I guess to my point is that the reason that we are trying to decrease our number of completed specs is because we are trying to get new specs on the ground which have a combination of two things; one, our lower lot cost, either due to the function of our impairments or because we have auctioned the lots at a better price from a new seller and our lower construction cost in terms of both labor and materials. So, the real key is how do we get our new cost structure on the ground as quickly as possible and capitalize on what I think it should be higher margins on those units than what our existing net specs are?

And the next question is from David Goldberg from UBS. Your line is open.

Nice quarter.

Thank you.

The first question, Don, it’s a question on the homes you were talking about in California and how you guys have gotten your pricing down to foreclosure levels. Just wondering if you could talk about what the margins on those homes look like and what kind of products you are offering relative maybe kind of size and amenity-wise relative to what you see in the foreclosures and how competitive you think your product is at that price?

Well, I think that our pricing is competitive relative to the quality of product that’s out there. One of the things as I was out there traveling and D.R. is out there traveling, is our sales people do have foreclosures that they can take our prospective new home buyer to. So then the difference between the price and the quality of the foreclosure versus our price which might be slightly higher, but on an apples-and-apples basis in terms of the quality of the unit they get a lot more for their money. Secondly, they have a warranty and someone who is going to stand behind that. And thirdly, they are basically buying a foreclosure even though the quality of the foreclosures has improved, there are still a significant. to most people, cash on our pockets to make that foreclosure livable. So, add all those things up, I believe without a doubt taking those into consideration, our product is priced very competitively with the foreclosures in California today.

And in terms of your profitability relative to maybe some of your other products where you have priced little more above in the foreclosure level?

We are designing the product data so that we can offer those at competitive prices and hit a margin that’s acceptable to us. A certain margin a day is at a minimum double-digit. So, you are seeing that and then we are doing it with a reduced land basis, so that we are able to meet the profitability requirement to start a new project.

And the next question is from Josh Levin from Citi. Your line is open.

Hi. Good morning, everybody.

Good morning.

You said that you are planning to be cash flow positive in '09. And I wonder if you could flush that statement out a bit more. I mean, thinking about worst case scenarios just the [congesting] environment we are in, how bad would things have to get before you think you could be cash flow neutral?

That’s an interesting question Josh, because if things continue to get worse, we will continue to reduce our inventory. We will actually bring our homes under construction down, probably even more than we are planning to do today and you would actually end up with more cash flow at the end of the year as conditions continue to worsen. It can and to an extent that at the point the market recovers, that’s when we would be looking to put capital back to work and that’s when you would actually see cash flow slowdown.

Okay. Another issue is about interest rates, when you are on the field and you are talking to potential home buyers, do you get a sense that some potential home buyers are holding off because they are keeping on hearing the news that the government might sponsor an even lower mortgage rate or is that just not an issue for them right now?

Absolutely, notwithstanding the fact that the people can qualify at the current interest rates, we have people talking about mortgage rates going to 4%, to 2%, all that does is create doubt in the buyers minds. We would like to see the government sit through all of the alternatives and decide upon once so that our buyers can have some confidence that when they go buy and take a rate that it is a good rate.

And the next question is from Timothy Jones from Wasserman & Associates. Your line is open. Timothy Jones - Wasserman & Associates: Good morning.

Good morning. Timothy Jones - Wasserman & Associates: One of your competitors indicated that in the recent quarter that they had cut their build time by 31 days and their cost per unit by 33% over the last year. I am sure you have been doing some of the same step, but do you have any comparable figures like that?

Tim to be quite kind this morning, at this stage of my life, I am so tired of the smoke and mirrors comments from our competitors. What we are focusing on is the results, and I think you see the results for us this quarter. So, yes we have decreased the construction cost, we have decreased our construction cycles, but to put a number to all that is a bunch of hokey-pokey. Timothy Jones - Wasserman & Associates: Hokey-pokey?

How can you, not to get wild up this morning, but how can you prove what they say is true? Timothy Jones - Wasserman & Associates: It's been more of the one builder who I had been talking about streamlining the productions and reducing costs per square feet and then build times.

And we have some of our competitors, but what was the focus for a while it was, anyway, I don't want to, you have another question. I don't even want to get involved … Timothy Jones - Wasserman & Associates: Calm down, calm down.

We are continually focused on improving our operations across the borders. Timothy Jones - Wasserman & Associates: Okay, the other question is and I agree with this comment made. This was an excellent quarter, but the cynics say yes that you only took $56 million of write-down and one of your competitors is going to take ten times as much and they will come back with that number that you maybe been laid on the write-offs?

Right, you do recall what we did take in our third quarter and our fourth quarter. They were substantial amounts. One comment I would make is when we were determining our impairments for our fourth fiscal quarter into September, we were performing those analysis during the months of October and November which were clearly very tumultuous months in the economic markets and in the financial markets and in the housing markets. And so a lot of the pessimism that was generated during that period was contemplated in our fourth quarter impairments. And so really as we looked at it this quarter, we looked at it, it’s okay, how is the performance in each of our projects as compared to how we evaluated them as of September, and to the extent that the performance was in-line with that there were no impairments to be taken. So, we took the ones that we needed to, based on the performance this quarter and where we expect our pricing will be. Looking forward, it’s all going to be a matter of where the market goes in the spring and the summer, and where pricing goes in the spring and the summer as to what the future impairments will be and we are not in the business of predicting where impairments are going to be.

Hey Tim, by the way, looking forward eventful production, I don’t know who was talking about eventful production over the last ten years, but there were a lot of people talking about eventful production and we have got it now as we said.

The next question is from Stephen East from Pali Capital. Your line is open.

Thanks. Good morning.

Hi.

I like the conversation, it was pretty good.

What about vertical integration Steve.

I know it. If you look at incentives, what’s going on levels what you are seeing today and you were seeing in the quarter and compared to the past and mortgage buy downs and cost, etcetera. How are you all looking at the entire incentive picture?

We will start and Stacey can give you the real data, but what we are doing in each one of our divisions and each one of our subdivisions is we are focusing on how many units that we want to sell and close in each one of those subdivisions. And so we are focusing on our incentives to move that inventory and reduce our land and lot positions that we own, so that we can continue to generate the free cash flow that we are telling everybody that we are going to do. So as a result, those incentives will change on a daily basis and they will change on a product-by-product basis and subdivision-by-subdivision basis. So, to give a specific number that I can say is, if you look at our gross margins I think that our incentives are.

Yes, our incentives are fully reflecting our gross margins. I don't think we are seeing the same type of increase in incentives year-over-year that we saw last year compared to the previous year. It's hard to segregate everything though and actually try to break out a percentage, but no significant changes in incentive levels.

Okay. On the mortgage buy down issue, you mentioned that, of course, everybody is sort of circumspect about whether rates are going to drop further and it makes some sort of just tread a lot for a little bit. Does mortgage buy down become a bigger piece of the incentive puzzle for you all or not?

It has, as I have been in the field I can tell you that when I was in California, we had some people buying down the rate to 3.25 a percent and that basically took us three points I think to buy it down of that. So, people are sensitive to, if they keep hearing that rates are going down they are becoming more sensitive to make it a lower rate than the face rate that has been quoted. So, it is becoming a bigger portion of our incentives.

Our next question is from Alex Barron from Agency Trading Group. Your line is open.

Thank you. Hey, good morning guys.

Good morning, Alex.

I wanted to ask regarding lots, what percentage of your lots I guess or communities are currently have gone through at least one round of impairment?

They had moved a whole lot since last quarter, roughly overall of our total inventory balance, it's roughly in the 25% to 30% range. And you have to keep in mind our geographic mix and the geographic mix is very heavy in the south through Texas. And the south where you haven’t seen nearly the price declines that you have seen in some of the other areas. Of our total communities that we have impaired, a little over 40% of our total communities company-wide.

And one other thing to keep in mind is that, in our current communities we did execute some land sales and those projects would have also been impaired, that those are no longer included in the numbers that Bill is talking about.

Okay. That's helpful. The other question I wanted to ask on, related to the impairments, do you guys have like a number of what previous impairments benefited gross margins this quarter?

Yes, this quarter we had on the homes gross margin lines, if you look at the home gross margin line we had $72 million that came through as a previous impairment that were related to homes closed this quarter.

And our next question is from Jay McCanless from FTN Midwest. Your line is open.

Hey, good morning.

Good morning.

I wanted to ask about land purchases and I know that you are in the move to conserve cash right now, but are there any areas of the country where you would consider adding to your land position if the terms were right?

No.

Okay. Second question along with that, are you seeing any more offers in the banks, are they getting more realistic and what they are expecting to get for some of their land at this point?

Yes. There are pockets across the country where banks are now coming to us. Clearly, because one reason we got the cash to put the vertical construction on the ground which not many builders do, especially the privates which have lost virtually all of their financing. So, as a result, we become in a number of markets, the banks are coming to us and asking us to work through their lot position force. I guess, back on the land position, we are looking at land deals from time to time, but the return on our land deals where we would have to cash out a land track are extraordinarily high and we would have to have return of our money within a very short period of time. So, it's a much lower risk profile today on a deal that we do than what we have done in the past. Stacey?

If it's an option contract, Jay, we're certainly interested, because that’s something we can tie up with very limited earnest money and still have the lot position in front of us without actually bringing the land onto our balance sheet using our cash today.

We believe we are the preeminent builder in terms of our cash position to be able to help banks work their way through their lot positions as we did in the late 1980's in Texas, and as we did in the late 80's in the Virginia, Maryland market. So, we are in a good position I think to take advantage of those opportunities.

And the next question is from Carl Reichardt from Wachovia Securities. Your line is open.

Hey, guys how are you?

Great. How about yourself?

Fine. Thank you. Stacey, I was curious about the, I think we've talked about this before, the cost to complete and the 50 basis points improvement I think in margin, I think it was an improvement due to that. That's accruals on projects going forward where ROE, it looks like the indirect costs are going to be lower than you have thought. I was curious what is that due to, is that just due to over accrual or are you seeing cost to complete just come down more than you thought?

Carl, I will take that. Really every quarter as we evaluate our development projects, we are constantly adjusting our estimates what we expect the future cost to be remaining. For those the changes that came through this quarter really were reflected on projects that were closer to completion. And we had some estimates in there, what we thought it will ultimately cost and ultimately our revised estimates are lower. And so we have a credit that’s coming through the P&L. There is always some level of adjustments of these estimates every single quarter, it's just simply at our lower volume of revenues that we have now and it actually had a little bit bigger impact on gross profit this quarter than it would have had in the past. But the types of adjustments and the level of adjustments was not necessarily unusual versus any other quarter in the past.

Alright, Thanks Don. And then although -- talk about community count, but if you guys look at '09, what's your rough expectation of how much shrinkage you have and the number of communities that you have available to you. And have you seen community count decline about in line with your order pace or has it been slower or faster?

I will make sure this may come as a shock to you Carl, but we are anticipating our community counts to go up in '09.

And the next question is from Jim Wilson from JMP Securities. Your line is open.

Thanks, good morning everyone.

Good morning.

I was wondering, can you comment a little bit on what the margins look like in backlog, still trying to get you on that, you are not going to quantify the exact components of how you've improved the cost structure, but just maybe a little comment on what it looks like currently in backlog, and what’s continued to filter through?

We still see some price decline in our sales price this quarter. There will continue to be some margin pressure going forward. And then it's just a matter of then what happens in the marketplace whether cancellation rate stay down in the 30s or whether they go up. So, as we see our margins, we certainly have continued to reduce our cost, we are pricing our homes based on where our costs are to achieve margins like we reported this quarter. So, from that standpoint, we wouldn't say that our margins and backlog are out of line with where we are this quarter, but the market going forward is going to determine what we actually report as our margin results are.

And by the way, we are very pleased with our cancellation rates, especially as it stayed stable in the second two months of the quarter and down from the first month of the quarter. That’s a positive sign to me.

Definitely. And then the other question which is, I know you talked on a little bit of regional color of sales, you are talking of Texas as a huge market for you and it looked like you had, at least your comp in the southeast was relatively flat obviously at a low level, but can you comment kind of on conditions and how you are moving products in those markets?

First of all Texas continues to be a strong market for us, I know people continue to question that, and have questioned us for years. But thoroughly Texas is where D.R. got a start in 1978 and we believe we are in the best position in the key markets in Texas which include Dallas, Austin, [Clean Area] as well as down in San Antonio and Houston. So our margins are not necessarily void of competition and Texas has become more competitive and Texas especially since oil and gas boon has subsided, but nevertheless, we are in a great position in Texas and we will continue to have Texas contribute very strongly to our overall earnings for the year.

Our next question is from Lee Brading from Wachovia. Your line is open.

Hello everyone.

Good morning.

Good morning. On the gross margin, I was not sure if I heard correctly. I think you said there is a 70 basis point improvement year-over-year or 170 basis point improvement year-over-year on the average cost coming down? And just in more detail, could you give, is that across all categories being driven by land, material or labor, you break that out a little bit. Just where are you seeing improvement recently?

It was 170 basically and it's really across the board, I don't have a specific breakdown for you by the different categories. One of the things we were talking about earlier, was we continue to renegotiate both labor cost and material cost going into the land. We are seeing some benefit of previous impairments coming back driving that number, so all of those are combining to add up to the 170 basis points.

Okay. On the borrowing base, obviously it's fairly low, but you don't need it because of the cash. And it appears you have a plenty of cushion in regards to the covenants. Last quarter, I think you talked about being in some discussions with the bank, just looking at the facility, are you continuing to do that or is that even necessary because of your cash position?

Yeah, we are still in discussions, and are just kind of evaluating what our alternatives are. We certainly aren't needing to borrow on it, so we haven't been in any hurry, but we are still evaluating our alternatives there.

And really what we are focusing on is trying to negotiate a deal that is a good long-term deal for us, simply because of the fact that we have got the time now, and we might as well get the deal right, and we don't need the banks right now, but we certainly anticipate needing the banks in the future.

And our next question is from Giles Van Praagh of Atlantic Investment. Your line is open.

Good morning. Just a follow-up on some of the regional commentary, and the commentary about the impairment charges that have been taken. As you noted to the question of how much has already been impaired. You highlighted the concentration of inventory that’s in the south, which has been holding up better in terms of pricing standpoint? Just wondered if you could flush that comment out a little bit further along the lines of sort of current look if possible, if prices continue to hold up okay, or if they are getting better or worse or anything else in that front?

Well, if you look at our sales this quarter, our pricing in the south central region was flat year-over-year. Our volumes were down, our volumes have been down for sometime just reflective of primarily the tighter mortgage environment. The pricing has held relatively flat, we are reducing our cost in the south central region similar to other areas and so thus far, our margin have not seen dramatic compression. We do comment that we do evaluate certain projects in the south central region for impairments. And so we will continue to do that but based on what we have seen thus far, we would not anticipate those impairments to necessarily be based on what we are seeing today, to be material charges.

Okay. Thanks. And if I could one other, just a naïve question from someone who is not as familiar with the industry. But in beginning in the prepared remarks you talked about once again on the impairment that you had evaluated $1.4 billion for potential impairments and $1.2 billion was not impaired. Is that 1.2 now that, I don’t know if there is more color you can put around that, that these were properties that were sort of on the bubble and just made it or is it safe to say that they are now, if you are pretty good about them for at least immediate future.

Yes, there will be a mix of both, there will be a certain amount of those that would be relatively close to the line, but there would be others that we took a look at, that we would feel comfortable with. I am not sure I can put a percentage on that, but I would comment the indicators that we look at, that would comprise that $1.4 million would be projects in which we are seeing margin declines, typically margins that would be at or near single-digit range. That’s when we would really start looking harder in a project. Or a project where we have seen a substantial amount of volume decline, such that we expect to have to reduce pricing in the future. And so we have been looking at the performance of project or expectations for the project and from that determine what level of impairment needs to be taken. We did comment that on the $1.2 billion that we did not impair, about half of that are in the states of Florida, California and Texas, and so that’s where the concentrations are.

Okay. Thank you.

Our next question is from Eric Landry from Morningstar. Your line is open.

Good morning, thanks. I missed some of the earlier comments. The DTA evaluation loans, I have it a's about $20 million increase, is that correct?

That’s about right., yes.

Okay.

Increase to $984 million.

How much?

To 984 from 961.

Okay. Real quick, is it likely that if you are not planning on taking much advantage of the five-year NOL carry back. Is it likely that it's about $1 billion and your DTA will not come back under the balance sheet, then you will keep that fully reserved, or is there some way that it can't come back in the balance sheet even though you don’t plan on taking much advantage of the NOL carry back?

Well first, we are not going to absolutely state that we would not take advantage of any carry backs. We'll leave our options open there. But moving forward, assuming that we don’t do any additional carry back, then we would have to look to our forward profitability because that evaluation allowance would be recoverable through future profits, so basically over a 20 year period from the time the loss was incurred. And so the way the process would work there as far as that coming on to the balance sheet in the future would be, first we have to achieve profitability again. And once we achieve profitability again we need to establish some reasonable trend and forward visibility of profitability such that we can justify saying we will be profitable for the foreseeable future. And at that point then we can start considering bringing back the valuation allowance back on to the balance sheet, and whether it would be a portion of it or the entire amount would be determined based on how confident we are in the level of profitability in the future.

Right, so it's basically no changes, if the NOL carry back is increased for you guys.

We would have to evaluate it based on our business plans at each quarter. So it's kind of like, Bill, we don’t want to say that there is no impact from that possibly. But if there was increased carry back that we thought we would take advantage of, we could reestablish the DTA for that portion.

If we projected additional tax losses greater than we currently can carry back.

Right.

Great thanks.

Our next question is from [Garlin Buchanon] from Babson Capital. Your line is open. Garlin Buchanon – Babson Capital: Good morning.

Good morning. Garlin Buchanon – Babson Capital: Hi. Would you please breakout backlog and finished lots not in backlog that are in residential land and lots developed and under development?

In the residential lot category, our backlog is going to be in the homes in profit. So anything that's in backlog is already going to be included in the homes and under construction lots. Garlin Buchanon – Babson Capital: Okay. And are there any finished lots done within residential land and lots developed and under development.

Yes, it would be any lots that are finished that we have not yet started a home under construction. Garlin Buchanon – Babson Capital: Right and what is that count?

We have roughly 30,000 finished lots, are currently finished in or in that line. Garlin Buchanon – Babson Capital: Okay. And could you please explain what’s driving the increase in land held for development?

Those would be basically additional projects that we have determined over the past quarter that we have determined we are not going to proceed with development in the next 12 to 18 months. We will then reclassify land inventory into land held for development, generally, out of the residential land and lots lines. Garlin Buchanon – Babson Capital: Okay. Thank you very much.

And we do have a follow-up question from Michael Rehaut from JP Morgan. Your line is open.

Hi, thanks. First question just, I guess one of your comments to Carl about community count going up. I was wondering if you could, but I don't know if you are serious or not or if you could just give a little bit more clarity to that and if that's a change from the last couple of quarters in terms of year-over-year comparison or trends?

We believe as I explained to the previous caller, Mike that as the banks begin to bring some of their subdivisions to market that we are in a preeminent position because of our cash position to be able to help them work through the land and lots positions and that’s really the basis upon which that comment was made.

Outside of that though and I know that you don’t give absolute numbers but can you give us a rough idea of what your community count was year-over-year on average for 1Q '09?

Mike it’s probably around 20%.

That would decline.

Yes.

Okay.

Let me clarify one thing. We are not going to go buy pieces of raw land and develop those because as we told you, our land and lot and development spend is going to be less than $500 million this year. So really what we are focused on is helping the banks work their way through their land and lot positions.

Okay, thanks Don. Just a couple of more quick questions just for clarification, just a couple of numbers. You said I think in answer to my first question that you hope to get completed spec down to, I believe it was 25% to 30% of total spec, is that right. And Stacy you kind of then said a little bit later maybe it's a 40% number; I was wondering if you just reconcile that or how should I think about that.

Yes, Don's 25% to 30% is completed as a percentage of spec. My 40% was specs in all stage of the completion as a percentage of our total inventory.

Okay

Because the question was centered around our 6600 and our 3200 or 3300, 6600 specs and 3200 or 3300 completed specs, and I agree that number is higher than we like and we are focused on reducing that number.

Thanks. I just heard the two of your numbers, I wanted to make sure I understood what you were referring to. Lastly just on the, you are good enough to give, I think it was Bill, the $72 million contribution from prior impairments. I was wondering if you could just give us what that number was last quarter, if you have it.

For the fourth quarter?

Yes.

Yes, in the fourth quarter it was $144 million.

Okay, great.

Homes gross margin.

Right, thanks very much.

Thank you.

Our next question is from Megan McGrath from Barclays Capital. Your line is open.

Hi thanks, just a couple of quick follow-ups. I am not sure if you gave this before, I am sorry if you did, but do you have the absolute number of homes in inventory.

10,400.

10,400 thanks. And do you know the number of set homes that went through your closings in the quarter?

By the way it is 10,700, I apologize.

700, thank you.

Your question was how many set homes went through this quarter?

Yes.

It's hard to give you that exact number, Megan, because some of those would have been specs coming into the quarter and some would have been homes that cancelled then became specs. A number that we can give you is that the number that we sold and closed in the same quarter, and that was about 43% of our total volume.

43% of volume, okay. And then one quick follow-up. On the gross margin, given the big improvement that you have this quarter, I know you said some of that was due to mix to the Southeast. So as you look at your backlog, you feel comfortable with that level of improvement that you saw this quarter, or do you expect it to stabilize, how do you feel about that?

By the way that came from the south central I believe.

Sorry, south central, okay.

And to answer your question very clearly, we had a wonderful quarter with our gross margins, we are dealing with the market on a day-to-day basis, subdivision-by-subdivision and we would love to be able to have those same margins in the third quarter, but it's uncertain and we are just dealing with it on a day-to-day basis.

Okay. Thanks.

Our next question is a follow-up from David Goldberg from UBS. Your line is open.

Thanks. Actually my follow-up question was answered. I appreciate it.

Have a great day.

The next one is from Alex Barron from Agency Trading Group. Your line is open.

Yes, thanks. I had a couple of questions. One, I was interested in your comments about helping the banks out, is that basically like you are going to buy lands from these guys, or are they going to work more like an option where they hold the land, and you just kind of take down one lot at a time and determine, figure and do that based on whether the house is profitable or not, like what are you thinking?

Actually, it's going to be on a division-by-division, subdivision-by-subdivision basis. And our Division Presidents are out there in their respective markets. Adding to their lot and land inventory, as they see, and it's going to be different from Salt Lake City to San Francisco, to Orlando. So, it's really going to be dependent upon what the banks are trying to do and whether it fits with our business model.

Then my other question was given the, even though you guys did outperform the other builders in terms of the sales rate, I mean on an absolute level it still seems pretty lower and much lower I guess in U.S.,probably you thought things would get to. I am just kind of wondering if the sales rate doesn’t get better, what are you guys thinking in terms of -- so that the SG&A doesn’t go up a lot?

Well, I can only answer your question this way, Alex. We have known one another a long time. People had doubts about us when we entered into the downturn whether we had the ability to cut the SG&A, whether we are too lean, and didn’t have much SG&A to cut; I can only tell you one thing. We are focused as a company from the 38th floor where the executives are all the way out to, the Division Presidents in each one of our divisions, we are going to adjust our SG&A to meet the level of demand from our home buyers. And to the extent, if that’s less, then our SG&A is going to become less. So, feel comfortable. Our game plan is, if you look at our reductions and our total SG&A dollars, quarter-after-quarter, year-after-year, over the past three years of this downturn. We have consistently decreased our SG&A on a quarterly and on an annual basis and we will continue to do that.

Okay, great. Thank you.

Yes sure. Are there any more calls, any more questions?

We do have one follow-up from Michael Rehaut again from JP Morgan. Your line is open.

Thank you. I guess, you tried to push my luck at one more and I appreciate it.

We have to start charging you a consulting fees.

Just kind of different question now, more on the reasons for cancellation on that front, if you can give us any sense of, financing generally speaking is the number one, two and three issue, and even looking at it more granularly, among the people where you do get a cancellation because of the financing or not being able to secure mortgage. How much of that is more because of the lack of the down payment or just that they don’t have certain income requirements for the government loans?

The reasons for cancellations, Mike, is consistently financing as the number one reason. Over the years, some of the reasons for that has continued to evolve, we saw certain types of products just go away when we already had people in our pipeline and qualified. Today, I think, down payment continues to be a challenge for a lot of home buyers, and there is just continual tightening of credit banners across many of our markets and increased down payment requirement. Regarding the loans, down payment only increased about 0.5% from 3% to 3.5%. So I haven’t really heard too much there. The elimination of down payment assistance programs did certainly impact some level of demand. In terms of affordability and having income being the constraint, prices in many markets have adjusted, so that affordability is not the same level of issue that was a year or especially two and three years ago.

The primarily results as Stacy says around the financing, we have a lot of buyers coming into our models, they are satisfied with where the pricing is today. They want to take advantage of the low rates, and we are going to take advantage of the low prices, and as Stacey said affordability is at the highest that’s been in the last 8 to 10 years. So, basically it gets back down to one thing, jobs and consumer confidence, and those two things are working against the home building industry right now.

And I guess just on the comment that credit requirements are getting tighter. I mean most buyers today in terms of your market and the customer that you serve is either taking out a government or conventional agency type mortgage, and so are those comments being directed, I would think, more on the agency side, the GSE type of a mortgage and if that’s true in terms of it being a tighter credit or a higher rate as they move more towards risk adjusted pricing. Why can't they just go slip back for NFHA, VA or is there a home price problem or some of the income ratio requirement that they just don't qualify for that either.

I think most of our houses are priced so that the price point we are offering doesn’t limit the mortgage products that are available to people. The credits tightening that I am referring to is just continuing to tweak to a minimum FICO score or the amount of down payment that’s required on a certain type of product. And incremental changes that we are seeing on that product are greatly reduced from where it were.

One thing that’s helping us is that our mortgage company has a home buyers club and to the extent that there are qualification issues or credit issues or whatever. Basically these people that were enrolling our home buyers club, we find six months later that they are buyers. So, as a result that’s one of the ways we are dealing with tightening credit standards.

Okay. Thank you.

We don't have any other questions in queue at this time.

Alright. We want to thank you for joining the D.R. Horton first quarter conference call. I will end by saying to our employees who are listening. It's a wonderful quarter, notwithstanding the fact that we need to do better, and bottom-line is that you know what your goal is. Your goal is to out-execute the competition, and take no prisoners. Thank you very much.

This concludes today's conference call. You may now disconnect.