Question-and-Answer Session
(Operator Instructions) Your first question comes from David Goldberg – UBS.
David Goldberg - UBS
I’m trying to get an idea given where the backlog is now as you guys look forward into fiscal ’09 the ability to generate free cash flow based on where you are on a backlog perspective now, how are you thinking about it? And I guess that includes maybe, are you going to be bringing down a level of unsold inventory further in your plans?
Ara K. Hovnanian
Larry, do you want to address that?
J. Larry Sorsby
As we said in the release, cash flow generation is going to be a little more challenging as conditions have continued to deteriorate out there in terms of pace and sales price. Having said that, our focus remains on cash flow generation even at the expense of margins and yes, as we shrink communities you’ll see our started unsold levels come down.
We think they’re at appropriate levels given the community count right now David because you’ve got to have two or three started unsold homes at a community level. Many people wait to buy a home until they’ve actually got theirs sold so they want to get into something relatively quickly. Some of the low-hanging fruit has been taken away and we won’t be able to reduce it nearly as much as we did in 2008 but we will expect to reduce started unsolds somewhat during 2009.
David Goldberg - UBS
Ara, you mentioned in your opening comments about maybe some changes in the kind of firms that were interested in looking at joint ventures or partnerships. Can you give us some more color about what kind of firms you’re talking to now, maybe what kind of return requirements they would be looking at relative to the deal that you described a couple calls ago? That seemed like it was going forward and obviously without the land opportunities maybe that stalled it. But how it differs now and maybe what your partners are looking for relative to what they had been looking for in terms of return and in the way they want to participate?
Ara K. Hovnanian
As you can imagine there was a lot of turmoil in September, October and November in the financial markets. Some firms were very affected, some were not so affected, and some had an actual improvement in their position in appetite. I think it just changed the players. It didn’t necessarily change the type of players although maybe to some extent we’re seeing a little more interest in the private equity capital versus the hedge funds. But suffice it to say we feel there are plenty of interested parties out there; enough for us to meet our needs.
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