Beazer Homes USA Inc (BZH) 2002 Q4 法說會逐字稿

Good day and welcome to the Beazer Homes Earnings Conference Call for its 2002 fourth quarter and fiscal year end. Today's call is being recorded and will be hosted by Ian McCarthy, the Company's Chief Executive Officer. Before he begins, Ron Warren, the Company's Director of Investor Relations will give instructions on accessing the slide presentation over the internet and will make comments regarding forward-looking information. Mr. Warren?

Thank you, operator. Good morning. Welcome to the Beazer Homes September 30, 2002 fourth quarter and fiscal year-end conference call. During this call, we will webcast a synchronized presentation. To access the presentation, go to www.beazer.com and click on the earnings release icon in the center of the screen. From this site, you may submit questions to us electronically. For those not connected to the webcast, you're also welcome to e-mail your questions to investor relations@beazer.com. Before we begin you should be aware that during this call, we will be making forward-looking statements which are subject to factors that could cause actual results to differ. Please refer to page 29 of our 2001 annual report for details.

Ian McCarthy, our CEO, and David Weiss, our CFO, will now give a 15-minute presentation, after which they will address any questions you may have. I will now turn the call over to Ian.

Thank you, Ron.

Today we'll be discussing our results for the September quarter and fiscal year end. Both of which set all-time records on several fronts, including home closings, net income, EPS, new orders and backlog. We'll also be discussing our increased EPS target for fiscal 2003 and our expectations for further growth in the coming year.

We're extremely pleased to announce these all-time record results for the quarter ended September 30, 2002, which is our second full quarter including Crossman Communities. The results from both Beazer and Crossman demonstrate the growth and improved profitability we expect to continue to achieve from our combined operations.

For the quarter, all-time record closings of 4,839 homes were up 58% over last year while record revenues of $904 million were up 47%. Closings for the quarter include 1,575 homes from Crossman Communities. Excluding Crossman, Beazer's home closings were up 6.4% for the quarter, and revenues up 12%. Net income for the quarter increased 71% to $40.7 million, producing all-time record quarterly EPS of $3.03. EPS was up 18% from the same period in 2001 and includes the higher number of shares outstanding from the Crossman acquisition.

For the full year, net income reached an all time record of $122.6 million, up 64% over last year on a 50% increase in home closings. This increase in net income generated EPS of $10.74, a 31% improvement over fiscal year 2001. Excluding Crossman, Beazer's home closings increased by 20% for the full year. From these results, you can see we have continued to achieve growth in our existing operations while adding further dramatic expansion through our Crossman acquisition. Net income for both the quarter and year increased more than revenues, reflecting improvements in our profit margin. David will give further details on these improvements later.

Perhaps as important as our record financial performance during the fourth quarter of fiscal 2002, are the increases we achieved in new orders and backlog, breaking all previous records. During the quarter, we had 3,731 new orders for homes, a 59% increase over Beazer's 2,340 new orders in the fourth quarter of fiscal 2001. On a combined basis including Crossman in the prior year, new orders were up 14% for the quarter. This reflects a 12% increase in Beazer's new orders and 17% increase in Crossman's orders, relative to the same operations last year. The integration of Crossman Communities with Beazer Homes has been proceeding extremely well, as demonstrated by the combined increase in our new orders. At this point, we have fully combined those operations where there was overlap between the two companies in the Southeast region. Reflecting this integration, we can no longer break out Crossman new orders from Beazer's, but we will continue to report last year's new orders on a combined basis to allow like for like comparisons to last year.

With the start of the new fiscal year, we have also fully implemented our value created framework for managing the home-building businesses throughout Crossman. As with Beazer's operations, this is helping to drive growth and profitability while controlling the balance sheet. At September 30, 2002, we had 6,519 homes in backlog, up 64%, with a sales value of $1.3 billion, up 67% over the prior period last year. New order and backlog figures for both the quarter and year demonstrate the strength of our business and are the strongest indicators of our future financial performance. We believe this performance will continue to be strong in fiscal 2003 and, further, that concerns about a potential bubble in the U.S. housing market are completely unfounded. Later I will comment this.

But before, David will provide details here of our financial performance and future guidance.

Thank you, Ian.

As Ian reported earlier, we achieved a 71% increase in net income on a 47% increase in revenues during the September quarter. This reflects an EBITDA margin of 9.3%, 80 basis points higher than last year's September quarter. Both our gross margin and SG&A percentage improved during the quarter relative to the prior year. The improvement in our gross profit margin is especially impressive, given the fact that this quarter's gross margin includes $5.5 million of purchase accounting charges related to the Crossman acquisition. Such charges should be approximately $2 million in the current December quarter and approximately $1 million per quarter there after. Our margin improvement reflects both our ability to raise prices over the past year as well as our increased efficiency and the improved purchasing power we have with our new size.

We continue to raise prices in many of our communities with an average increase of 1% to 2% or approximately 2,000 to $4,000 per home overall. Land prices are generally up 5% to 8% which is also approximately 2,000 to $4,000 per home. And other costs are flat to down. Further, we are just beginning to experience the improved purchasing power that comes with our new size and we expect our hard construction costs to come down by at least 1% or approximately $1,000 per home over the next year. The net impact is that we expect our margins on home closings for fiscal 2003 to be up approximately 30 basis points or approximately $600 per home from those just reported in the September quarter.

For fiscal year 2002, net income improved by 64% on a 46% increase in revenues to $2.6 billion. This reflects the gross margin improvements that I have described and a 30-basis point improvement in our SG&A percentage. As with our gross margin, we expect our SG&A percentage to improve further in fiscal 2003.

I would now like to discuss our extremely strong current financial position. At September 30, 2002, our ratio of debt to total capitalization was 48%, an improvement from the 53% level at September 30, 2001. Interest coverage, EBITDA divided by interest incurred in the last 12 months, was 5.0 times, compared to 4.6 times a year ago. During fiscal 2002, we improved our credit stats while completing a major acquisition, reflecting our commitment to maintaining a strong balance sheet and conservative financial position. One of the most impressive aspects of our current financial position is our current liquidity and the level of cash in our balance sheet.

At September 30, 2002, we had no borrowings outstanding under our $250 million revolving credit facility and had $125 million of cash on our balance sheet. This is an $83 million increase in our cash position from September 30, 2001. Taking into account the cash on hand, our net debt to total capitalization was 43% at September 30, 2002.

I would now like to provide details on the growth that we expect and our increased EPS guidance for fiscal 2003. With the exceptional results produced in our September quarter and the increases in new orders reflected during the quarter, we've now increased our guidance for fiscal 2003. Our current target for EPS in 2003 is $12.25 per share, up from 12 -- the $12 target we set at the time of our last conference call. This increased guidance is based on 17,500 home closings at an average price of approximately $187,000. Somewhat lower than the average price of homes currently in backlog, reflecting the increased number of subdivisions we expect to be opening at more affordable price points.

Home closings are projected to be up 6% from combined home closings for Beazer and Crossman for the last 12 months, as we expect our number of active subdivisions to be up 5% to 10% throughout the year. Currently, however, our subdivision count is only up approximately 3%, reflecting delays in opening new subdivisions that should be open by the spring selling season.

As I described earlier, the growth margin on home closings is expected to be approximately 30 basis points higher than the September quarter just reported, although somewhat less than this in the December quarter as the impact of purchase accounting continues to burn off. SG&A should be approximately 30 basis points lower as a percentage of revenues than last year, reflecting our improved efficiency.

To sum up in fiscal 2003, we're targeting further growth and continued improvements in profitability. Now I will turn it back to Ian.

Thank you, David.

As you've seen from the results that we've achieved, our business continues to be very strong. Based on the increased guidance we're giving for fiscal 2003 with a target 14% increase in EPS to $12.25 per share, you can also see that we expect our business to continue to do well.

Now, we recognize that this expectation is contrary to the belief of many in the financial community and the popular press, that there is a current housing bubble that is about to burst. This belief is entirely unfounded. Nearly every respected economist, including Alan Greenspan, has said there is no housing bubble. In fact, there has never been a national housing bubble in the United States. The overall average price of homes in the U.S. has never gone down in any year since the great depression in the early 1930s. A number of people have have been focusing on the fact that the average price of housing has increased by 6 to 8% over the last three years, which is higher than inflation or wage increases. It should be noted that over the past 20 years, home price increases have averaged over 5% annually and we would not be surprised if house price increases returned to this average. This would continue to be a very healthy environment for us and, in fact, is significantly higher than the 1 to 2% average price increases built into our forward-earnings targets. We would like to reiterate that what we've been saying for a long time, that the principal driver of the current housing market is a fundamentally strong level of demand arising from dramatic population increases in the 1990s. At the same time, the home building industry was constrained by the land and titling process that limited housing production to the lowest levels since the 1960s. The situation has given rise to a historically low supply of housing inventory. And based on this imbalance, we believe that housing production over this decade will be higher on average than over the last decade. And with less volatility than in past cycles. This increase is being driven not by a speculative housing bubble, but by basic strong demand and constraints on supply.

During the 1990s, the total U.S. population increased over 32 million, an all-time record for any decade and 6 million more than previously projected by the U.S. census bureau. The latest forecast for population growth in the current decade are comparable to that record increase, ranging from 31 to 34 million. We are confident that this additional demand, combined with the under supply of housing during the 1990s, will fuel continued housing strengths over the coming years.

We would like to now answer your questions and we're first going to take e-mail questions that we've received.

Okay, we have a -- a question over the internet, given the strong balance sheets and low valuation, will you consider share repurchases this year?

We -- over the last two days and had a board meeting here in Atlanta and we discussed a number of options for the Company in terms of the prospects for the company going forward, the -- the investment of the Company needs to achieve its growth targets, the potential of share buybacks, even the potential of paying dividends. We looked at all those alternatives. Our board concluded based on the fact that we've been able to achieve 20% top line growth -- compound annual growth over the last five years and 40% income compound annual growth over the last five years, the potential was still there for us to really increase the profitability, top line growth and bottom line growth of this Company and that at this time, we weren't going to initiate a share buyback program or a dividend program.

So, operator, we have no more web questions here, I'll hand that back to you to announce the procedure for asking questions.

Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question, please press the star key followed by the digit 1 on your touch-tone telephone. Again, it is star 1 if you'd like to ask a question.

We will take our first question come Joseph Shroka with Merrill Lynch.

Good morning, everyone.

Hi, Joe.

Hi, Joe.

So, we're not going to buyback any stock or going to pay a dividend, or you guys are not, actually, what do you do with the $125 million, I did hear the comment, David, about increasing the subdivision count, but other than that, any plans?

Well, Joe, we see, as we've said, we see absolutely fundamental positive demographics here in the housing industry. We also see, as you well know, the consolidation of the industries over larger players getting bigger and bigger. We see many opportunities there. Either in organic growth to our markets by buying land, investing land in those existing markets or by acquisition and Beazer has done both over many, many years now and been very successful. So, we're looking for those opportunities. Our board has given us a specific guidance on being it -- you know, achieving the goals that we've set for ourselves and we will be using that capital. Now, you know, we think it's prudent to have a certain amount of fire power for the Company. We just think that's a prudent way to run the business. We've always done that and been very focused on maintaining our balance sheet and having a healthy balance sheet, but we see many opportunities out there to invest both in our existing businesses and potentially in acquisitions as the industry continues to consolidate.

So, then in the 5 to 10% subdivision growth internally, are you targeting that all organically? Or do you think you can achieve that all organically or do you think that you'd have to make some acquisitions to get to that?

No, our current projections for next year, straight up and down from the subdivision counts through the earnings, is all based off of organic growth in our current communities, in our current markets. So, no acquisitions built into that currently.

Okay. And then relative to a year ago, both as you closed out the September quarter and in these monthly new orders you released for October recently, realizing that a year ago was the post-September 11th period, are you doing more, or less or the same amount of discounting, incentivizing or marketing to get people to make some purchases?

Well, first off, with respect to last year having been "post-September 11th" you should recognize Joe that our orders rebounded quite strongly post-September itself. In fact, for the month of the October were up 33% last year for Beazer. So, it was fairly strong and there wasn't really very much discounting on our part. Rather than doing this comparison, where we are currently, I would say we're still raising prices in many, perhaps not quite most, of our communities anymore, and the level of those price increases is certainly less than they've been in the past year. And that's why on average, it is currently sort of 1 to 2% whereas in the past it would have been more like 3 to 4%. But I would also say there is not any significant discounting there. There might be a few communities, specific instances, but there's no overall market where I would say we're seeing any significant discounting. I think a lot of that has to do with the lack of inventory at the lower price points. There's just so little inventory that there's really no -- at those price points, there is really no reason to discount.

Fair enough. Thanks.

Thanks, Joe. Thanks very much.

We will take our next question from Margaret Wheelen, UBS Warburg.

Good morning, guys.

Good morning, Margaret.

I have two questions, the first is about the average selling price. It is lower than we were looking for based on the value of the backlog. Joe asked about discounting which I guess you're not doing. And I understand the unfavorable mix, but I wonder if you're offering any kind of incentives or maybe consumers are taking less options or something like that?

First off, on the average price, the average price for this quarter was -- I wouldn't say lower than we were guiding. With respect to the backlog, it does reflect a mix. And in the fourth quarter of this year, there were heavier closings from the Southeast, from the Midwest, from the central region, less so from the mid Atlantic and California, which have longer build cycles.

Okay.

There is a mix issue there. That's why the current price of the backlog is significantly higher than what we're currently delivering.

Okay.

And the guidance for the future is the price will be coming up, but not reaching that level of the average price in the backlog.

Uh-huh.

With respect to discounting and/or taking up of options, that has come down somewhat, but not dramatically as a percentage of overall sales price.

Can you quantify that at all?

It was running about 8% of the sales price and is currently down to more like 6% of the sales price in options and upgrades.

Okay. And then the second question is just housekeeping, will you give us the number of lots owned and optioned and your cancellation rates for the quarter, please?

Sure, the lots owned and optioned, the total between those two is 76,778, which represents about a 4.5 year supply based off of the last 12 months combined closings.

Uh-huh.

That's made up of approximately 34,800 owned and approximately 42,000 optioned.

Okay. And the cancellation rate?

And the cancellation rate was around 22%.

22. Would you give us a community count as well?

Sure. The current community count is 468 active projects.

Great. Thank you very much.

Margaret, let me just add one point on our average selling prices. As you know, we're really targeting the first-time buyer in the affordable market so for to us bring our average selling price down is a goal for us. It doesn't mean we're bringing our profitability down, it doesn't mean we're not raising prices. We're just targeting that market. We've talked about the population and the immigrants coming in here, by definition they're going to be first-time buyers. We see that as an enormous market. So you will see us trying to target that lower price point. It may bring our average price down a little bit. That's a positive for us.

Operator, we have a couple more e-mail questions which I can read. There are two that are somewhat related. First, what is our target leverage? And debt to capitalization?

And a related question, can we comment on the amount of cash in our balance sheet and express that in terms of cash per share in relationship to our earnings?

First off, the target leverage, on a long term basis we are talking about a 50/50 debt to total capitalization. So currently at 48% and net debt of 43%, we're running somewhat below that. We would expect during this year the net debt to capitalization to come up on a seasonal basis. But probably not come back up to the 50% level as we are currently generating significant cash in our operations and with the cash on our balance sheet up front should be able to fund our operations for the coming year to a great extent with that cash with pretty minimal borrowings under our revolving credit facility.

The current level of cash in our balance sheet at $125 million is a little over $9 a share. Which actually is obviously the bulk there for our earnings for the year, of about $10.70 per share. And that reflects that we're still making some investment in the business for future growth and expect that future growth, but are also generating returns in excess of our growth rate, currently, and therefore generating cash in the business.

So... After those questions, we can take the next question from the operator.

We will take our next question from Ivy Zellman, Credit Suisse First Boston.

Hi, Dennis McGill on behalf of Ivy.

Hi, Dennis.

How are you guys doing?

Good.

Good.

Can you go ahead and give us some market color on where you're seeing your most strengths and weaknesses?

I'll tell you that on the West Coast we're seeing a lot of good strength there. We still see very good sales in the California market and Phoenix and Nevada. That's very good for us. In Texas, our affordable product is selling extremely well. So, we've seen very good sales in that, and we've recently had good sales in Dallas where we haven't got as much in terms of affordable product there.

Southeast is somewhat flatter this time. Our orders in -- in the October period were flat in that market and so we are seeing a little bit of softening there. The mid Atlantic is still very strong. That's one of the most constrained markets there. It's difficult to bring developments online, but we are seeing very good demand in that market there. So, I would say the only market we're really seeing a flat period and some softness is in some of the markets in the Southeast.

Okay. You guys mention that he did you're not running into too many markets where you're needing to discount. Are there -- are there certain instances where you see discounting may be trending -- trends getting a little bit worse where maybe your competitors are starting to discount and could possibly force you to offer some more incentives yourself.

We're really not seeing that. I think that to whatever extent you're hearing that anecdotally, it is really at the higher end and I'm talking about really the extreme higher end, talking 750, million dollar homes, even above the Toll [ph] Brothers sort of numbers and I don't think Toll [ph] is even seeing that sort of discounting as you've seen from what they've said today. So, we're really seeing very, very little in the way of significant discounting in the market.

And obviously you will see promotions running there, you will see that, but they're just normal course of business in terms of where we will pay closing costs or where we'll, you know have encouragements there to bring it out. But net-net, when we look at the profitability, it's not affecting us. And we don't see that being a factor in the market.

Okay. Would you be able to break out either the price increase from the Crossman Homes separate from the Beazer Homes?

No -- that is certainly not off the top [inaudible] study. We might be able to get there. But I would say it's fairly similar. It doesn't -- it doesn't seem like it is very different.

Okay. All right. Thank you very much, guys.

Thanks, Dennis.

We'll take our next question from Jack Sparzik, BB&T Capital Markets.

Good morning.

Hi, Jack.

Can you tell us the depreciation, amortization for the full year and then what you think it will be for fiscal '03?

Sure. The depreciation and amortization for '02 was $9,453,000, that only includes Crossman for half the year. I would say for '03, it should be more around $11 million.

Okay. Okay. And was Crossman, for the fourth quarter or for the part of fiscal '02 that you had it, how did it end up, neutral to earnings, slightly dilutive, slightly accretive?

Slightly dilutive, mostly because of the purchase accounting. Entirely because of the purchase accounting. Other than that, accretive.

And the guidance for Crossman's accretion in fiscal '03, has that changed at all? Do you still expect it to be in the dollar range, I guess?

No, it's -- it's very similar. The guidance is -- included in that, it is still that guidance for Crossman.

Okay. And since you guys are going to be opening so many more subdivisions or, you know, more aggressive on that in the near-term, if you look at the life of a subdivision, when do the majority of the sales occur? Have you ever looked at the life cycle of a subdivision in that regard?

Sure, and it -- it occurs typically sometime, a little bit after the grand opening. It starts off slowly, then has a big bubble, typically for a couple of quarters, then a long pale after that, although it varies greatly according to the size of the community and where it is. But the -- the heaviest sales rates are typically in the two quarters-post opening of the community.

Would you say certainly over half the sales?

No, I wouldn't say that.

Okay.

But although it would be fair to say that the sales rate is probably more than double the sales rate three quarters out.

Okay. Great. Thanks a lot.

You're welcome. We have another question over the internet. Could you please summarize the components of the statement of cash flow for the year?

I don't have the statement of cash flows on me, but I do know the bulk of our cash -- our increase in cash during the year was in the $80 million range and the majority of that did come from cash flow from operations there. There would have been a little bit of maybe about $20 million of that cash flow from financing activities as the debt raised during the Crossman acquisition was somewhat in excess of the -- of the cash used. But the bulk of that was cash flow from operations.

So, back to the operator.

Okay. We'll take our next question from Matt Moyer, AG Edwards.

Thank you for taking my call. Good morning, guys.

Hi, Matt.

In the 25 to 50 subdivisions you plan on opening, can you break it out as to maybe either geographically where you see that or in price range where you see that coming out?

Certainly in terms of price range, the -- I'd say about 2/3 of them are in the lower price point, certainly under 200, many under 150. Florida, Texas would be very big places we're expecting to grow our subdivisions. In the West, as a mix, it's going shift more to Phoenix and Vegas than California, although we still expect California to grow. And then in the Midwest, where, of course, we're at the much lower average price through Crossman, the growth won't be as much in terms of number of communities as at the Beazer operations.

Okay. And in that regard, in the Indianapolis area and in regards to Crossman, will you expect to be -- kind of emphasizing more the Trinity name in Indianapolis versus the Crossman name?

Well, apparently there already has been a shift that way, where the some of the larger communities -- larger pieces of land that Crossman owned have been either split between Trinity and Crossman or shifted to Trinity getting a somewhat higher average price. I would say that I wouldn't expect that to accelerate during the current year, but to a great extent that's already happened.

Would you say that your product in the Southeast tends to be more first-move and priced higher than -- than first-time home product?

No, I wouldn't say that. It's definitely very much -- first time buyer product there and what we're also doing is trying to incorporate some of the Crossman Communities type of product, which is very affordable, which had an average price lower than the existing Beazer product, we're trying to incorporate that into a number of existing Beazer markets as well, so we're really targeting that first-time buyer, particularly in that Southeast market.

Great. One last housekeeping question, do you have revenues by region?

Yes. During the quarter, I assume you mean?

Yes, please.

The Southeast region was $282 million. The West was $283 million. The Central was $52 million. The mid-Atlantic was $102 million. The Midwest, $166 million. And that should come to your total home buildings. That doesn't include --

Right. Thank you very much.

Thanks, Matt.

We'll take our next question come Steven Kim, Salomon Smith Barney.

Hi. It's Jed Banks for Steve Kim. Congratulations on the quarter.

Thanks, Jed.

Just wanted to get a little bit of commentary on how the integration has been going with Crossman now that you've been together now for several months. And in particular, whether the volumes that you've been seeing out of Crossman are in line with the expectations or your goals that you had targeted when you announced the deal?

In terms of the integration first, as we said in the -- in the call today, we -- we've put the operations in the Southeast under common management. We've really integrated those operations now. We're still selling under different trade names there, but we've been blending the back office systems and integrating that. So, in the Southeast we're very comfortable with that.

And really, the Midwest is a stand-alone whole new region for us in the way that we acquired Trafalgar House a few years back, and that was a whole new region. The Midwest now is a completely separate region for Beazer, but now we're fully integrating that again into our system.

So that's on target and that will be achieved through this year. We mapped the data into our data warehouse so that we have that information. We've got them up on all of our internet sites and et cetera. They're integrated into the Company, but it is a separate region there. So, the integration of the Southeast is well under way and the Midwest is forming that whole new region.

As far as our expectations for Crossman, I think it is reasonable. We'd like more -- the Midwest has been a little softer than we'd like, but even taking this last period in October, their orders were up compared to last year. So, we -- you know, we've got to look it at step by step, the Midwest as a market has been somewhat down over this period, but we have strong expectations there for the future. We like that market, we really like the position that Crossman had in the market and we now have. We like the affordability there. We like the long, well-priced land base that we have in that market. Our expectations are very high for the future and even current results are quite reasonable ahead of last year.

Great. Then I guess maybe a question for David. The breakdown you're giving terms of prices being up 1 to 2%, land prices being up 5 to 8%, over what time period was that?

That's year-over-year, so, each quarter compared to the similar quarter of the last year.

Okay. And finally, just a point of clarification, the guidance that you provided for your gross margins on SG&A, I think gross margin's up 30 basis points, SG&A down 30 basis points that was for FY '03, the entire year as compared to the fourth quarter of '02 levels?

No, actually, with respect to the gross margin, that's correct, that it was entire year '03 versus fourth quarter of '02. With respect to the 30 basis point improvement on the SG&A that was really a year-over-year comparison for the full year and should be a fairly constant improvement year over year for each quarter during '03.

Okay, great. Thanks very much.

Thanks, Jed.

Next we go Mike Kendor with Salomon Smith Barney.

Yes, most of my questions have been answered. I have a couple of numerical follow-ups. One was you gave the purchase accounting hit for the fourth quarter. Do you have the -- what it was for the full fiscal year?

For the full fiscal year, yes, it was approximately $16,300,000.

Okay, great. And on the 2003 guidance, do you have an EBITDA equivalent for the EPS, the $12.25 of EPS guidance you gave?

Not specifically, although that should be in the neighborhood of 345 to $350 million.

Okay. And the other thing was I was trying to write down a lot of numbers and missed the closings number that you gave for your '03 guidance.

17,500.

Thank you.

Thanks, Mike.

I have another e-mail question. What was the average loan to value ratio in the mortgage operations and what was the capture rate and what was the fixed versus adjustable rate mix? A lot of questions.

The average loan to value in the neighborhood of 90%, so, still pretty good. The capture rate is about 75%, which has been stable for quite a while now. And the fixed versus adjustable rate, I don't have it here, but I would be fairly certain the fixed rate is below 5% of the total -- I'm sorry, the adjustable rate is below 5% of the total right now.

Next question.

We'll take our next question from Todd Voigt with Cliffwood Partners.

Yes, hello. Good morning.

Good morning, Todd.

Looks like you've done a great job of selling land. It looks like the margins on the land sales have been great and actually up phenomenally well. I would love to hear what your thoughts are, and you also talked about land prices going up pretty rapidly. You know, thinking down, a year and a half down the road and thinking about margins, and I know you have to replace your land with new highly escalated land. What does it mean for margins down the road? As you sell your more -- your better priced land and you replace it with higher priced land. What does it mean for margins in a year and a half from now?

That's sort of the -- you know, was in the guidance we tried to give. And the 5 to 8% increase in land prices is more of what we have seen or have been seeing over the past year. Especially the last six to nine months in land prices. Actually, our expectation is that it s going to slow down, the pure land price appreciation. So, when we build in our guidance for the margins going forward, we're obviously using that land that has had that price increase from the past and in the future, or rather the cost increase -- the future price increases that we're expecting to build in are those 1 to 2% of the total sales price.

So, you need to recognize the land is about 22, 23% of the sales price. So, 5 to 8% increase in the land only translates into about a 1 or 2% increase in the sales price. Currently we're seeing land price appreciation flow. It's -- it certainly has flowed over the last year relative to the prior year and we believe that's going to continue. So, we think we're going to actually be seeing less pressure on our margins in the future from land price increases.

How do you find land, where every other homeowner is talking about buying hundreds of millions, if not billions of dollars of land a year. Number on, how much land do you have to buy this year to meet your earnings estimates? And how do you compete versus other home builders, public and private, that also are trying to meet Wall Street's estimates?

Well, built into our current expectations -- the business generates a lot of cash, if you're not going to be either, one, replacing land or, two, even more so, buying land for growth. Even though we're still buying land for future growth, the cash generated in the business is more than enough to re-- to replace the land. On an absolute gross basis, for instance, this past year we spent about $600 million on land and land development out of cash flow generated from operations. Now, that's netted into the operations because land is part of our inventory.

Over the next year, we would anticipate purchasing or spending about another $800 million on land and land development. So, obviously that number is growing and we can still do that from our cash flow from operations given the current profitability of the business, to buy the land for future growth. So, it is certainly true, we're not as aggressive as some at buying long-term land holdings for say the next 5 to 10 years, as some homebuilders are doing, but certainly over the next three to five years, having efficient land back for that and replacing our 4 1/2 year supply of land is something we can officially do from our cash flow from operations.

Sure I understand you have the financial capacity to do so and have proven you can in the past, it just seems, you know, so many people talk about how there is no land out there, but I mean everyone is buying land and my question was how do you guys find land? And how do you compete against all the other builders that are forced to buy land or have their stock prices fall?

I think the point here, Todd; that we feel very comfortable in the depth of our teams in the field in each one of these markets. One of the reasons that we like to make major acquisitions of established companies when we move into new markets is that those people have been working within that field, know the land, know exactly how to get that and have really been able to achieve that over a long-term basis. Whether it is our acquisition into California, we moved into California, you know, back in the early '90s, into the Texas or the Midwest and now recently into the Midwest, we've got teams that have been running those operations for many, many years. And in many cases, many decades there.

So, we feel absolutely comfortable in our ability to compete with the other public home builders there. As far as the private builders there, you know, I'm afraid they are finding constraints. The market is very tough. The land purchases are becoming larger. The financing there is becoming more difficult for them. The fact that we're able to access as are the other public builders, but access to Capital Markets both in equity as we did through the Crossman transaction and through debt as we did through that and have done on numerous occasions, I think it gives us a real advantage and I think that will really spur this consolidation. Land is the most important factor that's really forcing this consolidation, linked also with the financing. So, you know, we feel comfortable that our teams as good as anyone out there. They've got the experience in their markets. They will be able to find the land for to us generate the growth in the future. We've done it now many, many years. And we feel very comfortable we'll be able to do that. In fact, we want to take more market share in those markets and we expect to do that.

Yeah, I know, you've proven you can do it. I wish you good luck going forward.

Also, you know, you do have a little bit of a mortgage origination/mortgage broker fee business. When you underwrite mortgages, are you looking at the buyers? What type of loan to value are these buyers buying at today, including piggybacks or other second mortgages that they would put on a house? Are you seeing a deterioration in the quality of the home buyer in terms of credit quality or how much debt they're taking on? Or the type of mortgage they're taking on, are you seeing a lot of, you know, interest-onlies or five-year arms, or more aggressive financing to try and get into a house?

No, we're definitely not seeing those as a dramatic trend. First off, the -- recognize through our mortgage company, we just originate the mortgages. With don't hold them, we're not the provider of the mortgage itself. So, some of that would be with the mortgage holder. With that being said, to the originating mortgages, we're seeing very little in the way of the adjustable rate mortgages currently and loan to values are still at about 90% and the standards have not loosened dramatically. So, in terms of having significant other household debt, that's not the case for our home buyers.

Okay. Good for you guys, thanks so much.

Thanks, Todd.

We'll take our next from Deepak Connor from Lord Abbott.

Great quarter, guys.

Thanks.

All my questions have been answered. Everyone did a great job. Thanks a lot.

Good.

We will go next to Tony Campbell of Knot Partners.

Guess they're saving the best for last, I don't know.

Absolutely!

The delta in payables, I was surprised at how much cash you guys generated, you don't give us a balance sheet, so, what was the delta if you would, David?

I don't have that full balance sheet on me, Tony, but it would have generated a significant portion of that fourth quarter increase in -- in cash. So, the cash flow from operations. A part of that is simply the closings during the last -- during the last quarter, being up from where it was -- where it was at June 30.

If you don't make an acquisition, what do you think your balance sheet will look like at the end of '03, please?

It will probably look very similar to today's, perhaps with another 30 to $40 million cash on it.

Okay.

And some more equity.

Okay. And finally -- finally, could you give us some guidance, obviously you're getting positioned now to make an acquisition, so, what kind of -- what would be the out -- the out -- the largest acquisition that you make in dollar terms now? Maybe you want to give me a range, I don't know.

Tony, I would say we don't want to give any guidance on that. As you know, we've made a number of acquisitions, we've been able to integrate those into the Company from the smallest to the largest. Obviously Crossman being the largest, we're integrating that now and getting the benefits of that company throughout our total Company. We will look at all opportunities. We don't need to do any acquisitions at this time. It's not something that we need do. The guidance we've given today is totally without acquisitions. They are going to be strategic and possibly opportunistic if the market is there for us. So, we'll look at the whole range there are. You know, we see a lot of opportunities there. We think the pricing is a little rich some cases, so we're going to take our time and look at it. We don't want to put ourselves within any parameters that we then need to work to. We will look at all transactions. We have done this on a number of occasions now. We've been very successful with this but as I say, we're not chasing down deals, we're looking for the right opportunity, of whatever size fits the bill.

And finally, just to kind of come back to the gentleman's question about replacing land. I guess there are what, 83,000 private home builders, are there any -- is there any data as to sort of the average land position or the dollar land position in the private sector?

There is not much accumulated data, but out of those 83,000 home builders, I would wager that 82,500 of them have no land, have enough land for the next year. Really it's only when you get to the 500 largest home builders you're talking about any significant land supply.

And as I understand is, there is huge pressure since Banc of America is now out of lending to the private, nonpublic guys that there is huge pressure to find sources of capital. Is that correct?

I -- I would say yes, but not as if it's accelerated dramatically most recently. It's been over the last year.

I think the banks are being very controlled in their lending standards. They, you know, they're regulated in that sense and being prudent in how these lend to those private home builders, to our advantage. I mean, that's the point that we see this constraint in land and we see the same constraint in the market in terms of financing. A lot of developers who may have been there in years past are actually finding it difficult now to get that financing unless they have someone like a Beazer to come in and work through their development. So, we're seeing a lot of opportunities there, from some of the smaller developers who had traditionally provided land to the smaller private home builder. We are now seeing a lot of those opportunities. You know, I firmly believe this is both on the land constraint side and in the capital side, these are both factors that play in our favor.

I guess one further question, it seems to me that the southern region for you guys is a little slow based on last month's sales. Any reason for that?

I think some of the comps in these markets -- they've been very strong for a long time. You can take Atlanta or the Carolinas. They've been very, very strong. We're seeing some negative job figures in these markets now and I think we would like to see some stimulus in terms of the economy and jobs. Having said that, you know, we're still going to see 40,000 permits in Atlanta this year with negative job growth because there is still a population increase in this market. I mean we talk here about $32 million over the last decade. I will tell you, on an annual basis, about 120,000 people net move into this market in Atlanta. Plus, the birthrate of around 40,000. So, we've got a population increase in this market of around 160,000 with negative job growth for those people still need to be housed. I would say, you know, I think we'd see even stronger figures if we had job growth and hope if there is a stimulus from the Federal Reserve, if there is a stimulus maybe through tax cuts through next year, I think that will potentially help job growth, but you still have the population growth, which fundamentally underpins the housing market.

Thank you very much and good luck.

Thank you, Tony.

Tony, just to give some contacts, as Ian said, the numbers in the Southeast last year were quite strong last year for the month of October, up 44% in the Southeast.

Operator, back to you.

We will take our next question from Chris Bowders, Raymond James.

Great quarter, guys.

Thanks, Chris.

Real quickly, you broke out a new order pro forma 14% increase for the fourth quarter, can you give guidance as to what the close-ins were on a pro forma basis in the quarter?

Please stand by, we will resume momentarily. Please stand by, Ian McCarthy's line has disconnected. We're attempting to reconnect the line. One moment, please.

Hello?

Yes, a question from Chris Bowders from Raymond James.

I was just asking what the pro forma close-ins were in the fourth quarter versus last year?

Okay. Sorry, we didn't cut of because we didn't want to answer the question! [ Laughter ] Okay. Pro forma last year would have been 4,754 closings and so this year at 4,839 was up 1.8%.

Thank you very much.

You're welcome.

We'll take our next question from Timothy Jones, Wasserman and Associates

Good morning.

Hi, Tim.

Okay, a couple of things. First of all, in 1999 and 2000, your conversion rate of backlog in the fourth quarter was about 73% and dropped to 66% in 2001 due to the high backlogs and less spec building. But it went down to 63% this quarter -- this year and I'm surprised about that, given the fact that you have Crossman there which has a reputation of having an extremely high construction time and turnover rate.

Well, you were right on saying, Tim how it reflected a reduced level of spec building relative to the prior years. That continued fairly dramatically in the current year. You're also right that Crossman has a higher conversion rate than Beazer had. So, bringing them into the mix it reflects an even lower conversion rate for the -- for the Beazer as a portion of backlog.

No -- if it -- if it has a higher rate -- do you think this conversion rate should start turning around?

Coming back up again, that's correct. That's correct.

Yes. When are we going to see it? That's the question.

You should actually start seeing it next quarter.

I'm going to hold you to that one.

I know you will! [ Laughter ]

You better!

I don't have those here in front of me. It should start coming back up again during next year. Throughout next year.

Now, the -- I've been listening to builders talk about bringing SG&A cost down for 34 years, but certainly for the past 10, and they've been flat at best. This 30 basis points improvement in SG&A, can you get a little -- I have no problem with the gross margins and think you might be conservative. But the SG&A one, how do you intend to do that?

Well, to a great extent that's just coming off of a higher volume with trying to keep the fixed costs relatively flat. Part of it is going to be continued reductions in sales commissions, especially as we bring Crossman on-line onto our website and try to reduce the co-broke [ph]. But a lot is the just the additional leverage off the overhead. Recognize also that the 30 basis points is after some further increases in insurance costs. So while the bulk of the increases in the insurance costs has come through in the current year, which would have negatively impacted by about 30 basis points. And so our improvement in this year is net of that. There will be about another 10 to 20 basis points in additional insurance costs next year so the gross improvement in SG&A absent that is more like 40 to 50 basis points. Going from reduced sales commissions and mostly higher volume.

Now, last year I think your pro forma deliveries would have been about 16,500 and the sales were about 16,000 and you're looking for 17.5 next year, which is about 6%. That's about the increase in your -- in your average -- projected average subdivision; is that correct?

That's correct.

So, then, I can understand the 6% increase in delivery, 6% increase in subdivisions and I can buy that. But it implies around a 10% or so rise in orders and given the fact that we have record home orders this year and next year, in fact, would be off by a percent, is that aggressive? I mean, can you do 10% increase in pro forma orders given the economy and the competition without, you know, having to resort to discounts or so forth?

I don't think it is, Tim. A lot has to do with the timing of the opening of the subdivisions and when it is compared to last year on a year-over-year basis.

Give me a little flavor on that. I think it is critical.

This quarter, the December quarter, which was in fact an extremely strong quarter for Beazer last year but is not our, you know, for the year strongest quarter is where the subdivision count isn't up as much as we expect it to be later. During the March and June quarter, that's when it will be up the sort of 5 to 10%. And that's actually when last year our comps started getting weaker, last year, especially actually in the March quarter. So, we will be up against weaker comps during those quarters. And that's when we've got the new subdivisions coming on-line, especially in the lower price points. So, seeing orders up 10% or better during the March and June quarters, I don't think is a very aggressive --

So you think because of that, basically, for average subdivisions you can get orders up 4 to 5% and even if the overall economy is down 5% in the industry.

That's correct.

Okay. And lastly, quickly, Florida, I think you were flat in orders, both builders I talked to say, Florida, thank God since I live here, is still sizzling. I don't understand the differential.

We feel strongly about Florida and we've got high expectations of that market next year. We really believe we're going to deliver increased sales there, increased closings in Florida through next year.

Was it a function in the last quarter of just availability of projects or something like that rather than demand?

Absolutely. We're still investing in Florida. We're investing in the Tampa market, in Orlando, we see real opportunities there and we just need to increase our presence in that market. Which we've been doing over a period of time. Florida, as we've said for a very long time is a market we're targeting for future growth for the Company and expect some delivery there next year.

Tim, I want to come back to the conversion ratio question.

Yeah.

Where you said when is it going to come up? I said throughout the year. Which is accurate on a year-over-year basis, but seasonally, our conversion ratio is still highest in the fourth quarter.

I understand that. Much higher. But it will be improving year-over-year on each quarter?

That's correct.

Could you give me a roughly by -- by 1, 2 percentage or 5 percentage?

Probably about 2%.

Thank you.

Thanks Tim.

Our next question comes from John Stodd with Bank One.

Thank you, outstanding performance, folks. Just -- you've done a great job answering the questions, as well. Let me ask you, in your kind of overview, you keep citing supply restrictions and as you discussed lots and availability, you were very upbeat. Where exactly do you stub your toe, in what markets are supplies constrained?

John, let me give you a perspective that I can bring to you, you know, having come from the U.K. where supply constraint has been the order of the day for many, many years now, I will just put it in perspective. When I came here back in the early '90s, one of the concerns I had was that housing here was an easy market to get into. The barriers to entry were very low. And what we were looking for were markets that that barriers to entry and had difficulty there where we as a large builder could seed succeed. The first acquisition we made here was in the early '90s was in California. Looking for that constrained market. What we've now seen over these last few years across the country is that the entitlement process is more and more difficult in just about every state and that, to us, is actually an advantage. We see that as a real advantage. Now, what for us as a large builder.

What that does, obviously, it does constrain the supply, I'll give you my U.K. reference now. What's happened now in the U.K. is that housing production, although demand is still strong, has dropped back to levels of the 1940s that, here in the U.S. we're building at levels around the 1960s because of that constraint. The U.K. now, which is years ahead in terms of supply constraint; now building at only levels of the 1940s. I see here it becoming more and more difficult to be able to build the housing that we need to build, but that drives everything towards the larger builders. That's why we feel, you know, over the last five years, you've seen the top 10 builders double in size and you're going to see that again over the next five years. So, this supply constraint is on top of the process that's so difficult, is actually an advantage for us. It's the kind of thing we look for. We did it in California. We looked for it again in the D.C. market with Trafalgar House when we bought that company at the end of 1998. It's been successful for us. We're looking for the opportunities and think this constraint is actually really the factor that's going to drive our business forward and it appears within our industry, the large public home builders.

Thanks a lot. Let me just ask you, on the integration of Crossman, could you just identify -- underscore some of the big savings and indicate where the synergies are systematic as opposed to just getting rid of administrative kind of headquarter stuff? Could you identify the big pieces of the efficiencies?

Well, obviously we've only got one public company now. There is a cost to being a public company and we feel we can take that out immediately. In terms of the operations themselves, we actually want to grow the operations. So, we want to see the growth, we like to get growth within every one of these acquisitions that we've made.

What we're looking at, which is a real factor now, is that we're going back down the supply chain and saying, here's Beazer, a Company that last year, in fiscal year 2001, did under 10,000 closings, in fiscal 2003 is going to do 17,500 closings. We want to look at the supply chain, we want to look at our purchasing contracts and we want to take costs out of the business. Whether it is direct costs or indirect cost. Whether it is the cost of servicing our business in various ways. So, we really think that the size of the company is going to really affect how we go forward. So, we see that as a real opportunity. As opposed to going around and saying we can cut a little bit here, we can cut a little bit here in terms of integrating. What we're really saying is, let's take the Crossman platform, put it together with the Beazer platform and let's drive this business forward, let's look for growth in that business. And as we do that, let's cut our costs, both direct and indirect.

Thank you very much.

Thanks, John.

We will take our next question from Jim Wilson, JMP Securities.

Hi, guys, it's been a long call. One real just quick question, looking at -- at the Midwest and -- could you lay out just sort of -- I wasn't clear, your thoughts on growth opportunities throughout the Midwest? Are you looking at other markets? And in some respect, targeting the entry level buyer and all the immigrants, most of that has been in the southern tier states. What do you see as the Midwest prospects just over the next 12 months? And down the road as you potentially look for other markets?

Jim, I'd say obviously in Indianapolis we have the lion's share of the market there. Crossman with their very affordable product. And then Trinity, their move-up market where they bought Trinity a couple of years ago, they've now got a good move up product there. They're able to cross-sell from one product to the other. What we want to do is continue that process. The Crossman -- we're in production of taking this concept into their higher markets, Columbus, Cincinnati, we see really a good long-term potential there, to, one, still continue to expand the lower end product across the traditional Crossman product and then bring in a Trinity or a Beazer product slightly above that. So, still affordable, but we see opportunities there to have more than the single product line that Crossman was very, very good at. Crossman had a very defined product line which they established and they took into the markets outside Indianapolis. We will now continue the process that they started of moving up market as well to increase market share there.

So, we see real opportunities for growth in the Midwest, whether it is in the small satellite markets outside Indianapolis or whether it is into the larger markets, as I say, like Columbus and Cincinnati, that we believe have real long-term benefit. Now, going forward, we are going to look at other markets in the Midwest. We want to be sure that we fully integrated the companies, we've fully got the product in place in the market that Crossman currently build in, but then we will look to enhance our position in other markets in the Midwest going forward.

Okay. And David, just in your guidance for next year, are you assuming that the Midwest has much growth in it in closings?

There are certainly some growth in the Midwest, pretty proportionate to the rest, about 5% or so I would say.

Okay, good. Thanks.

We will go next to Arthur Winston, Pilot Advisors.

Great quarter, David, Ian.

Thanks.

I had two questions. When you say that the cash will grow $30 million without acquisitions based upon your $12.25 earnings, what would; a, happen to debt? And what would happen to inventories assuming no acquisitions and you earn the $12.25.

Debt would stay flat with where it is right now in absolute dollar terms. Inventories would increase, probably by in the neighborhood of $80 million or so. From where they are right now. Or perhaps even a little bit more than that. And that's reflecting, again, continued reinvestment in the business for -- for future growth beyond next year.

In other words, would the stable company -- you think the inventories aren't high enough as we speak.

That's correct. If we expect future growth, you know, for each future year and long-term, we continue to target doubling the business every five years and more than doubling our earnings in order to achieve that target. Certainly inventory will need to grow each year, perhaps not that full -- full percentage, but inventory will need to grow.

I missed the beginning of the conference call, if I'm asking that was said, don't repeat it. But can you break out how much earnings, if anything, came from activities other than building houses?

Yes, actually, in the press release itself we do disclose the financial service operations, mortgage operations and any land sales. So --

The profits are in there?

Yeah it shows you revenues --

And what's the capital employed to reduce those profits?

That's virtually nothing. And we have -- we hold no loans. There is nothing in that business. Some overheads in that business. And we expect land sales, of course, you know, just land. But with very little capital employed in the businesses.

And on a going-forward basis, the amount of recurring earnings and profits is about zero?

On what?

On any activity you do to produce recurring stream of profit really is nothing, is there? [ caller hung up ]

We will take our next question from Margaret Whalen, UBS Warburg.

Just a follow-up, would you give us the backlog by region, please?

Mr. McCarthy, are you on-line? Please stand by. Please stand by. We will resume momentarily. Please stand by, we're attempting to reconnect the speaker's line. Please stand by, we're still trying to establish Mr. McCarthy's line. Mr. McCarthy?

Yes, what happened here. We lost the line again? Apparently, yes Anyone on the call still?

Yes, there are people on the call. We have a question from Margaret Whalen.

Could we get the order product by region, David, if you have it.

Margaret, first, we apologize. The call has been dropped a couple of times. So we apologize to people on the call. Now we will answer the question.

And also -- I'll answer -- I started [inaudible] on your call -- your question, Margaret, but first, Art asked about are there recurring revenue strains from other sources? And the answer is no, although typically those other sources are just proportionate to the home closings and our gross revenues.

I'm sorry, Margaret, your question was on the backlog?

Yes, the regional backlog, if you have it, please?

Sure, units or dollars?

Units.

Units.

Yes.

Southeast, 1,857 units.

Yep.

West, 1,833 units. Central, 507. Mid Atlantic, 700. Midwest, 1,612. And that comes to 6,519.

Great. Thank you very much.

You're welcome.

Next we go to Devon Fitzgerald, Deutsche Banc.

Good morning, guys.

Good morning.

Just a couple of quick follow-up questions for you. Do you have a pro forma EBITDA number to include full year's contribution from Crossman?

I don't have that on me. We'll to get back to you with that.

That would be fine. In terms of your liquidity, what in terms of LCs outstanding is there?

That's another one. I'm going to need to get back to you on that.

Sorry about that. And then in terms of speculative inventory?

In terms of speculative inventory, it is currently at right around one unsold finished unit per community.

Just a little under I think.

Yeah.

And in terms of dollar as versus the overall inventory which you provided in the press release?

Right, in terms of dollars, that would equate to approximately $68 million worth. Out of the $1.3 billion in inventory.

Okay. And then just -- I know you touched acquisitions earlier in the call, but obviously over the past few years, you've grown EBITDA north of 50% for each of '01 and '02. In order to move the needle a comparable amount you need to make either many small acquisitions or large acquisitions. Do you have a sense currently -- or can you provide whether or not it is going the way of the private builder acquisitions similar to Lenor [ph] or a large public acquisition?

Devon, as we said earlier on, we don't want to put any boundaries around that and say we're only looking at this or we're only looking that. We're open to opportunities. We've been able to successfully buy private companies. We've now been able to acquire and integrate a public company. We're open to a lot of opportunities there. We do see those opportunities going forward. But, again, I'd reiterate that the guidance we've given today does not include any acquisitions. So, any acquisitions would certainly be incremental to prospective earnings over the next year and beyond.

Thank you.

Thank you.

We'll take our next question from Alex Ferrin, Franklin Templeton.

Good morning and congratulations.

Thanks, Alex.

I was just I guess remembering you guys talking about the $9 EPS target all along the year and this is quite amazing.

We appreciate that. That was a few years ago, but I think that it amazed people we could put a figure out like that. We've been able to certainly beat that number quite handily now.

Yeah. I did have a couple of questions, if I may. One has to do with if you could kind of go region by region, where are you seeing, I guess, the largest increases in -- in prices and the land costs that you talked about?

The two places where we're seeing well above average increases in prices and some land costs, the mid Atlantic, the D.C. area, is still extremely strong in terms of pricing, extremely tight in terms of land. So, we're -- we continue to raise prices and land prices continue to increase so it's slowed down a little bit on the land price increase. California, I'd say, Southern California, again, we continue to raise prices and land prices -- land price increases have slowed a bit there, although it remains a difficult place to find the pieces of land you need. So, those would be the ones that stand out on the high side.

Okay. And then I did notice your monthly orders in the mid Atlantic did pick up quite a bit this month, but I guess what accounted for, you know, the -- the slowness over the last few months?

Well, a lot of it was just timing of opening of communities. Even though the absolute community count was not up dramatically there, we opened a few communities which were successful and contributed a lot of sales and on a comparable basis it was against a relatively weak period. So, there's been some timing on opening of new communities in mid Atlantic. Because it had been "soft," looking at the absolute numbers the past few months as we've had delays opening communities.

But I guess that's back to your expectations now?

That's correct.

Okay. And then do you have a capture rate for your financial services?

Approximately 75%.

Is that up or...

It's about flat.

Okay. And any thoughts on the stock split?

We've talked about it and decided at least for now to not do a stock split.

Okay. Great.

Thanks, Alex.

We will go next to Ivy Zellman, Credit Suisse First Boston.

Hi, Dennis McGill again with another follow-up.

Hi, Dennis.

Returning to spec inventory, would you happen to have a number that would include not just homes completed, but started and a comparable number to last year at this quarter?

I think I do. Hold -- bear with me one second. I don't have the comparable figure for last year. Let me get back to you with this, Dennis.

Okay.

I don't have good figures here for it.

Thanks a lot, guys.

Thanks.

We will take our final question, it's a follow-up question from Deepak Connor with Lord Abbott.

A couple of questions. If I heard you right, your '03 guidance includes 17,500 closings?

That's correct.

And your backlog is 6,519.

That's correct.

I did miss out what on what average selling price you're looking at for '03?

$187,000.

187. And two follow-up questions on that. What is your average cost of funding right now? What is your average cost of funding right now?

Our average cost of funding, it's currently all our long-term debt, which is an average cost in the neighborhood of 8.5%.

8 1/2. And seeing your SG&A line in '03, fiscal '03, do you anticipate it will come in much below where you're seeing on an annualized basis right now?

About 30 basis points below.

Great, thanks again.

Thanks, Deepak.

Mr. McCarthy, I would now like to turn the call back over to you for any additional or closing remarks.

Thank you, operator. I'd like to thank everyone for a long call, a lot of interest in the Company. We're really pleased about that but I would just apologize again for the fact that we lost the line a couple of times and thank you for your patience.

As you can tell, we're extremely pleased with the results we have been able to achieve in fiscal '02 with the integration of Crossman there. And , again, I think as you can tell, we're very confident in the future, both with our industry, specific to the public builders and really in particular for Beazer Homes. So, we look forward to fiscal '03. We also look forward to talking to you again on January 23 next year to talk about our first quarter results for fiscal '03 and David and I will both be available today to answer any of your questions. The call will also an available and the presentation will be available in our website under Investor Relations today at beazer.com from around 1:00 p.m. onwards. Thank you for this call and thank you for your interest in the Company.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.