霍頓房屋 (DHI) 2002 Q2 法說會逐字稿

This is an unedited realtime transcript. An edited version with proper case and full speaker names will be available shortly.

THANK YOU, AND GOOD MORNING. THANK YOU FOR JOINING THE D.R. HORTON SECOND QUARTER CONFERENCE CALL. THIS MORNING WITH ME IS SAM FULLER, OUR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, STACEY DWYER, OUR EXECUTIVE VICE PRESIDENT, INVESTOR RELATIONS, AND BILL WHEAT, OUR SENIOR VICE PRESIDENT AND CONTROLLER. BEFORE WE GET STARTED, STACEY?

SOME COMMENTS ON THIS CALL MAY CONSTITUTE FORWARD-LOOKING. ALTHOUGH D.R. HORTON BELIEVES ANY SUCH STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, THERE'S NO ASSURANCE THAT OUTCOME WILL NOT BE MATERIALLY DIFFERENT. ALL FORWARD-LOOKING STATEMENTS ARE BASED ON INFORMATION AVAILABLE TO D.R. HORTON ON THE STATE OF THIS CALL, AND WE DO NOT UNDERTAKE ANY OBLIGATION TO PUBLICALLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS. ADDITIONAL INFORMATION ABOUT ISSUES THAT COULD LEAD TO MATERIAL CHANGES IN PERFORMANCE IS CONTAINED IN OUR ANNUAL REPORT ON FORM 10K AND OUR MOST RECENT QUARTERLY REPORT ON FORM 10Q, WHICH ARE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. TOM?

THANK YOU, STACEY. WE AT D.R. HORTON ARE VERY PROUD IN HAVING COMPLETED OUR 98th CONSECUTIVE QUARTER OF GROWTH AND INCREASED PROFITABLY. IT WAS ANOTHER VERY STRONG QUARTER FOR US, AND WE'RE PROUD TO ANNOUNCE THE FOLLOWING HIGHLIGHTS. WE COMPLETED OUR MERGER WITH SCHULER HOMES ON FEBRUARY 21st, 2002. THEREBY, BECOMING THE LARGEST AND MOST PROFITABLE BUILDER IN AMERICA. WE DECLARED A 3 FOR 2 STOCK SPLIT WHICH WAS PAID APRIL 9th. JUST AS A NOTE, ALL NUMBERS WE'RE REPORTED REFLECT THE IMPACT OF THE SPLIT. OUR STOCKHOLDERS EQUITY EXCEEDED $2 BILLION. OUR SALES BACK LOG, OUR FUTURE REVENUE INCREASED 28% TO A RECORD $2.7 BILLION. CONSOLIDATED REVENUE INCREASED 76% TO $1.6 BILLION. NET INCOME INCREASED 72% TO $88.9 MILLION. WE'RE EXTRAORDINARILY PROUD THAT OUR HOME BUILDING DEBT TO TOTAL CAPITALIZATION, NET OF CASH, IMPROVED TO 55.8%, FROM 57.8%. OUR HOMES DELIVERED INCREASED 53% TO 6,639 HOMES. OUR FINANCIAL SERVICES DIVISION CONSOLIDATED PRE-TAX INCOME INCREASED 118% TO $10.8 MILLION. ALL THESE ACCOMPLISHMENTS CONTRIBUTED TO OUR EARNINGS PER SHARE OF 64 CENTS, EXCEEDING CONSENSUS ESTIMATE BY 23%. WE REALIZED THAT THIS QUARTER'S RESULTS INCLUDE MORE INFORMATION THAN USUAL SINCE WE HAVE MERGED WITH SCHULER, DECLARED A 3 FOR 2 STOCK SPLIT, AND SINCE OUR STOCK PRICE HAS APPRECIATED ABOVE THE STRIKE PRICE ON OUR CONVERTIBLE DEBT. WE WILL ADDRESS ALL OF THESE POINTS IN THE CONFERENCE CALL, AND WE WELCOME ANY ADDITIONAL QUESTIONS YOU MAY HAVE AFTER OUR PREPARED COMMENTS. SAM?

THANK YOU, DON. OUR SECOND QUARTER SALES INCREASED 35% TO A QUARTERLY RECORD $1.8 BILLION 8,617 HOMES FROM 1.4 BILLION DOLLARS, 6,712 HOMES IN THE YEAR-AGO QUARTER. OUR STRONG SALES CONTRIBUTED TO AN ALL-TIME RECORD BACK LOG, 12,398 HOMES WITH A SALES VALUE TOTALLING $2.7 BILLION, A 28% INCREASE OVER LAST YEAR. OUR BACK LOG GIVES US EXCELLENT EARNINGS VISIBILITY FOR THE REMAINDER OF FISCAL '02, AND WE ARE NOW FOCUSED ON SELLING HOMES TO BUILD OUR BACKLOG FOR FISCAL '03. DON? WE CONTINUE TO SEE INCREASING STRENGTH IN VIRTUALLY ALL OF OUR OPERATING REGIONS. WE WOULD LIKE TO FOCUS ON THE WEST REGION FOR A MOMENT. WHEN WE ANNOUNCED THE SCHULER MERGER, D.R. HORTON AND SCHULLER'S COMBINED SALES MADE US THE NUMBER ONE BUILDER IN SOUTHERN CALIFORNIA AND THE NUMBER TWO BUILDER IN THE STATE OF CALIFORNIA. BASED ON NEW REPORTS FROM THE MEYER'S GROUP FOR CALENDAR YEAR 2001, D.R. HORTON AND ITS SUBSIDIARIES RETAINED THE NUMBER ONE RANKING IN SOUTHERN CALIFORNIA, BUT MORE IMPORTANTLY MOVED INTO THE NUMBER ONE SLOT FOR THE ENTIRE STATE OF CALIFORNIA WITH A MARKET SHARE OF 6.7%. IN ADDITION, OUR CALIFORNIA, SEATTLE, AND PORTLAND OPERATIONS MADE US THE NUMBER ONE BUILDER IN THE SPECIFIC {REEG}EN IN THE CALENDAR YEAR 2001, WITH A MARKET SHARE 6.1%. WITH OUR MARKET POSITION IN CALIFORNIA IMPROVING TO NUMBER ONE, WE ARE NOW A LEADING BUILDER IN THE TOP FIVE HOME BUILDING STATES. WE ARE VERY PROUD OF OUR NUMBER ONE POSITION IN CALIFORNIA, COLORADO, AND TEXAS. STACEY?

PACIFIC MARKETS WAS EXCEPTIONALLY STRONG SALES PERFORMANCE INCLUDE IN OUR CALIFORNIA MARKETS, SAN DIEGO WAS UP 69%. SACRAMENTO WAS UP 43%. THOSE ARE THE D.R. HORTON DIVISIONS EXCLUDING THE INCREASED SALES FROM OUR SCHULER ACQUISITION. LAS VEGAS WAS UP 106%. SAP ANTONIO WAS UP 41%. OUR COASTAL CAROLINAS DIVISION, WHICH YOU WILLS HILTON HEAD, CHARLESTON, AND MYRTLE BEACH WAS UP 115%. PHOENIX WAS UP 33%, AND AGAIN, THAT'S D.R. HORTON'S OPERATIONS EXCLUDING THE PHOENIX ACQUISITION OF DEEP CRANE WITH THE EMERALD BUILDERS, AND IN AUSTIN, OUR SALES WERE UP 18%. SAM? OUR FIRST QUARTER HOME BUILDING REVENUES INCREASED 77% TO $1.6 BILLION FROM $892 MILLION IN THE YEAR-AGO QUARTER. WITH HOME SALES REVENUES INCREASING 80% ON 6,639 HOMES CLOSED. SCHULER CONTRIBUTED 1,127 CLOSINGS WITH AN AVERAGE SALES PRICE OF $352,000. EXCLUDING SCHULER, HOMES CLOSED INCREASED 23% WITH AN AVERAGE SALES PRICE OF $206,000. WITH RESPECT TO OUR GROSS PROFIT, BEFORE THE CHARGES RELATED TO THE PURCHASE OF SCHULER HOMES, OUR GROSS MARGIN ON HOME BUILDING REVENUES FOR THE QUARTER WAS 20%. THIS REFLECTS A CONTINUED IMPROVEMENT IN OUR GROSS MARGINS OVER FISCAL YEAR '01. THE 17.8% GROSS MARGIN THAT WE REPORT THIS QUARTER IS NET OF $33.6 MILLION OF CHARGES ASSOCIATED WITH OUR SCHULER MERGER. WE EXPECT TO REPORT SIMILAR CHARGES IN THE BALANCE OF THE CURRENT FISCAL YEAR OF APPROXIMATELY $27 MILLION. AFTER WE REPORT THAT APPROXIMATE $61 MILLION OF CHARGES RELATED TO SCHULER IN FISCAL YEAR '02, WE DO NOT ANTICIPATE ANY MATERIAL CHARGES TO IMPACT OUR GROSS MARGIN IN FISCAL '03. OUR NATIONAL PURCHASING POWER CONTINUES TO FAVORABLY AFFECT OUR GROSS MARGINS THROUGH OUR NATIONAL PURCHASING PROGRAM, WE ARE NOW REALIZING COST SAVINGS OF OVER $1,800 PER HOME, COMPARED TO SAVINGS OF $1,700 PER HOME IN FISCAL '01. THE 1,080 PER HOME IS ALMOST A FULL PERCENTAGE POINT ON THE AVERAGE SELLING PRICE OF OUR HOMES. SINCE WE'VE ADDED SCHULLER'S ANNUAL VOLUME OF 5,500 HOMES PER YEAR, GIVING US A 12-MONTH RUN RATE OF APPROXIMATELY 31,000 HOMES, WE EXPECT TO CONTINUE TO LEVERAGE OUR PURCHASING POWER IN THE MONTHS AND YEARS AHEAD. OUR SG&A COSTS FOR HOME BUILDING FOR THE QUARTER WERE 9.5% OF REVENUES, AN IMPROVEMENT OF APPROXIMATELY 100 BASIS POINTS OVER LAST YEAR'S SECOND QUARTER. A FACTOR IN OUR IMPROVED SG&A WAS THE NUMBER OF HOMES SCHULER CLOSED IN THE FIVE-WEEK PERIOD COMPARED TO THE OVERHEAD INCURRED IN THAT PERIOD. IN FISCAL 2002, OUR GOAL IS TO MAINTAIN OUR SG&A AS A PERCENTAGE OF HOME BUILDING REVENUE AT 10% OR LESS. NOW, BILL WILL DISCUSS OUR FINANCIAL SERVICES SECTOR.

THANK YOU, SAM. OUR FINANCIAL SERVICES DIVISION HAD ANOTHER INCREDIBLE QUARTER. FINANCIAL SERVICES REVENUE FOR THE QUARTER INCREASED 65% TO $23.9 MILLION, FROM $14.4 MILLION IN THE PRIOR YEAR, AND FOR THE SIX MONTHS ENDED MARCH 31st, REVENUES INCREASED 71% TO $48.8 MILLION. THIS REVENUE INCREASE IS DRIVEN BY AN INCREASE IN LOAN VOLUME FROM THE HOME BUILDER OPERATION AND FROM AN INCREASE IN THE CAPTURE RATE TO 07% IN THE DIVISIONS WHERE WE HAVE MORTGAGE OPERATIONS. FINANCIAL SERVICES PRE-TAX INCOME FOR THE SECOND QUARTER GREW 118% TO $10.8 MILLION FROM 4.9 MILLION LAST YEAR, AND FOR THE SIX MONTHS ENDED MARCH 31st, PRE-TAX INCOME INCREASED 142% TO $22.3 MILLION COMPARED TO 9.2 MILLION LAST YEAR. WE EXPECT TO SEE CONTINUED GROWTH IN FINANCIAL SERVICES AS WE INCREASE OUR CAPTURE RATE, EXPAND OUR MARKET PRESENCE, AND INTEGRATE SCHULER OPERATIONS. FOR THE QUARTER, OUR CONSOLIDATED NET INCOME INCREASED 72% TO $88.9 MILLION FROM 51.6 MILLION LAST YEAR. FOR THE SIX MONTHS ENDED MARCH 31st, 2002, NET INCOME INCREASED 60% TO $162.4 MILLION FROM 101.4 MILLION LAST YEAR. THIS 60% INCREASE IN NET INCOME COMPARES TO A 54% INCREASE IN TOTAL REVENUES, CONTINUING OUR LONG-STANDING TRADITION OF GROWING THE BOTTOM LINE FASTER THAN THE TOP LINE. THE EARNINGS PER SHARE NUMBERS THAT WE ARE REPORTING HAVE BEEN ADJUSTED FOR OUR 3 FOR 2 STOCK SPLIT. OUR DILUTED EARNINGS PER SHARE FOR THE QUARTER OF 64 CENTS EXCEEDED THE CONSENSUS ESTIMATE OF 52 CENTS BY 23%. THE 64 CENTS PER SHARE REPRESENTS THE 42% INCREASE FROM 45 CENTS LAST YEAR. FOR THE SIX MONTHS ENDED MARCH 31st, 2002, DILUTED EARNINGS PER SHARE INCREASED 43% TO $1.26 PER SHARE FROM 88 CENTS A YEAR AGO. NOW, IN CASE YOU WOULD LIKE TO TAKE SOME NOTES, I'M GOING TO TAKE A FEW MINUTES TO WALK THROUGH THE CALCULATION OF THE AVERAGE DILUTED SHARES OUTSTANDING USED IN OUR EARNINGS PER SHARE CALCULATION. AS WE REPORTED AT DECEMBER 31st, OUR FIRST QUARTER DILUTED EPS ADVISER WAS 78.3 MILLION SHARES. THAT AMOUNT WAS BEFORE WE ISSUED SHARES IN THE SCHULER MERGER, BEFORE OUR CONVERTIBLE DEBT ISSUE BECAME OFFICIALLY CONVERTIBLE OR IN THE MONEY, AND BEFORE OUR 3 FOR 2 STOCK SPLIT. NOW, TO ROLL FORWARD TO OUR SECOND QUARTER ENDED MARCH 31st, 2002, DILUTED EPS DIVISOR, 141.5 MILLION SHARES. TO START WITH, THE 78.3 MILLION SHARES REPORTED LAST QUARTER. ADD 8.7 MILLION, ADD 6.7 MILLION, ADD 0.6 MILLION. THAT TOTALS 94.3 MILLION SHARES ON A PRE-SPLIT BASIS. NOW, I'LL GO BACK AND EXPLAIN EACH OF THESE AMOUNTS. AGAIN, THE 78.3 MILLION SHARES WAS OUR DILUTED EPS DIVISOR FOR OUR FIRST QUARTER ENDED DECEMBER 31st, 2001. THE 8.7 MILLION SHARES REPRESENTS THE 20.1 MILLION SHARES ISSUED IN THE SCHULER MERGER ON FEBRUARY 21st, MULTIPLIED BY THE RATIO OF THE NUMBER OF DAYS THAT THOSE SHARES WERE OUTSTANDING DURING THE QUARTER. THAT IS 39 DAYS DIVIDED BY 90 DAYS. THE 6.7 MILLION SHARES REPRESENTS THE NUMBER OF SHARES ISSUABLE UNDER OUR CONVERTIBLE DEBT ISSUE, WHICH WAS OFFICIALLY CONVERTIBLE AT MARCH 31st. AND THE 0.6 MILLION SHARES REPRESENTS THE CHANGE IN THE VALUATION OF EMPLOYEE STOCK OPTIONS DURING THE QUARTER, INCLUDING THE OPTIONS ISSUED IN THE SCHULER MERGER. NOW, AGAIN, THAT TOTALS 94.3 MILLION SHARES ON A PRE-SPLIT BASIS. TO THEN ADJUST FOR THE 3 FOR 2 STOCK SPLIT, MULTIPLY THE 94.3 MILLION SHARES BY 1.5 TO ARRIVE AT THE SECOND QUARTER DILUTED EPS DIVISOR OF 141.5 MILLION SHARES. NOW, THAT CALCULATION WAS FOR OUR SECOND QUARTER ENDED MARCH 31st. NOW, LET'S MOVE FORWARD TO THE CALCULATION FOR OUR THIRD AND FOURTH QUARTERS OF FISCAL 2002. AGAIN, WE'RE GOING TO START WITH 78.3 MILLION SHARES. ADD 20.1 MILLION SHARES FOR THE SCHULER MERGER SINCE THOSE SHARES WILL BE OUTSTANDING FOR THE ENTIRE THIRD AND FOURTH QUARTERS. ADD 6.7 MILLION SHARES FOR THE CONVERTIBLE DEBT, AND THEN ADD .6 MILLION SHARES FOR THE CHANGE IN VALUATION OF EMPLOYEE STOCK OPTIONS. THAT TOTALS 105.7 MILLION SHARES ON A PRE-SPLIT BASIS. TO THEN ADJUST FOR THE 3 FOR 2 STOCK SPLIT, MULTIPLY THE 105.7 BY 1.5, WHICH THEN RESULTS IN 158.6 MILLION SHARES. WHICH IS OUR EXPECTED DILUTED EPS DIVISOR FOR THE THIRD AND FOURTH QUARTERS OF FISCAL 2002. NOW, ONE LAST NUMBER FOR YOU. WE EXPECT THE DILUTED EPS DIVISOR FOR OUR FISCAL YEAR 2002 TO BE APPROXIMATELY 144.3 MILLION SHARES. THIS ASSUMES DELUSION FROM OUR CONVERTIBLE DEBT FOR THE LAST THREE QUARTERS OF THE FISCAL YEAR, AND IT INCLUDES THE SHARES ISSUED IN THE SCHULER MERGER OUTSTANDING FROM FEBRUARY 21st THROUGH THE END OF SEPTEMBER 2002. IF YOU WOULD LIKE US TO SEND A SUMMARY OF THESE CALCULATIONS TO YOU, PLEASE E-MAIL YOUR REQUESTS TO SHANNON BROOKS HERE AT THE OFFICE AT THE FOLLOWING E-MAIL ADDRESS. SMBROOKS@DRHORTON.COM. STACEY?

AS WE MENTIONED IN OUR PRESS RELEASE, THE COMPANY EXPECTS EARNINGS FOR THE YEAR TO BE APPROXIMATELY $2.75 TO $2.80 PER SHARE. IN THE THIRD QUARTER ENDING JUNE 30, WE EXPECT TO REALIZE 40% OF OUR REMAINING EARNINGS, AND IN OUR FOURTH QUARTER IN THE SEPTEMBER 30, WE EXPECT TO ACHIEVE APPROXIMATELY 60% OF OUR REMAINING EARNINGS. AS WE MENTIONED EARLIER, WE EXPECT TO MAINTAIN OUR SG&A AROUND 10%. WE EXPECT OUR HOME BUILDING GROSS PROFIT MARGIN FOR THE YEAR TO BE AROUND 19.2%, WHICH INCLUDES APPROXIMATELY $61 MILLION OF CHARGES RELATED TO THE SCHULER MERGER. THAT'S THE 33.6 MILLION IN CHARGES THAT WE ABSORBED THIS QUARTER AND AN ADDITIONAL 27 MILLION IN THE REMAINDER OF THE YEAR. WE DO NOT EXPECT ANY MATERIAL CHARGES TO IMPACT OUR EARNINGS IN FISCAL YEAR 2003. FOR FISCAL YEAR 2003, OUR GOAL IS TO GROW OUR COMPANY'S EARNINGS 15 TO 20% ON ESTIMATED REVENUES OF $8 BILLION. DON?

THERE ARE A NUMBER OF GROUPS AND DRIVERS IMPACTING OUR INDUSTRY AND D.R. HORTON SPECIFICALLY, AND WE WOULD LIKE TO DISCUSS THOSE WITH YOU, BECAUSE THEY'RE AFFECTING US IN A VERY POSITIVE MANNER. FIRST OF ALL, IT'S WHAT WE REFER TO AS OUR SALES DRIVERS. HOUSING AFFORDABILITY IN THE U.S. IS NEAR 30-YEAR HIGH. CONSUMER CONFIDENCE HAS REBOUNDED TO OVER 110. NEW HOME INVENTORY IS NEAR A 30-YEAR LOW, AND MORTGAGE RATES ARE STILL NEAR A 30-YEAR LOW.

THE SECOND GROUP IS THE DEMOGRAPHIC DRIVERS. WE HAVE 30 MILLION NEW IMMIGRANTS THAT ENTERED INTO THE UNITED STATES IN THE LAST 30 YEARS. 30 MILLION BABY BOOMERS ARE ENTERING THEIR PEAK HOME BUYING YEARS AND 25 MILLION ECHO BOOMERS HAVE CHILDREN WHO ARE ENTERING THEIR FIRST-TIME HOME BUYING YEARS. THE THIRD GROUP IS THE CONSOLIDATION DRIVERS. CURRENTLY, 80% OF THE HOME BUILDING INDUSTRY IS OUTSIDE OF THE TOP 10 BUILDERS. THIS IS CONTRIBUTING TO THE CONSOLIDATION OF LESS EFFICIENT BUILDERS IN THE INDUSTRY BY LARGER BUILDERS LIKE D.R. HORTON WHO HAVE THE FOLLOWING ADVANTAGES. DUE TO OUR REPUTATION AND ACCESS TO CAPITAL, D.R. HORTON IS ABLE TO SECURE THE BEST LAND DEALS AT THE BEST PRICE. AS SAM TALKED ABOUT BEFORE, OUR INCREASING NATIONAL PURCHASING POWER TO THE EXTENT WHERE WE'RE SAVING $1,800 PER HOME THIS YEAR OVER THE 1,700 REALIZED LAST YEAR. OUR SIGNIFICANTLY LOWER COST OF CAPITAL, AND OUR ACCESS TO CAPITAL MARKETS. WITH THESE FAVORABLE DRIVERS, OUR BALANCE SHEET AND RECORD BACK LOG, D.R. HORTON IS WELL POSITIONED FOR ANOTHER RECORD YEAR IN FISCAL 2002, OUR SILVER ANNIVERSARY YEAR, AND WE SEE THAT CONTINUING INTO FISCAL YEAR 2003. OUR STRATEGY GOING FORWARD IS TO CONTINUE TO GROW OUR EXISTING MARKETS WITH THE FOCUS OF BEING THE NUMBER ONE OR NUMBER TWO BUILDER IN EACH OF OUR MARKETS AND TO ULTIMATELY ACHIEVE A 10% MARKET SHARE IN EACH OF OUR MARKETS WHILE CONTINUING OUR TRADITION OF BOTTOM LINE GROWTH OUTPACING OUR TOP-LINE GROWTH. WE PLAN TO CONTINUE TO GROW FINANCIAL SERVICES BY INCREASING OUR CAPTURE RATE AND EXPANDING TO ADDITIONAL MARKETS AND INCLUDING THE SCHULER OPERATIONS AND OUR FINANCIAL SERVICES DIVISION.

WE'LL CONTINUE TO EVALUATE ACQUISITION OPPORTUNITIES. WE ARE THE LEADING CONSOLIDATOR IN THE HOME BUILDING INDUSTRY WITH 17 ACQUISITIONS SINCE 1994. WE'VE PROVEN BEYOND ANY REASONABLE DOUBT THAT WE CAN INTEGRATE ACQUISITIONS SEAMLESSLY, AND WE HAVE SHOWN THAT WE CAN GROW THESE ACQUISITIONS AND HAVE THEM BECOME MORE PROFITABLE CONTRIBUTORS TO OUR COMPANY. TO DO THIS, WE WILL CONTINUE TO ACCESS CAPITAL MARKETS AS NECESSARY. WE'LL CONTINUE TO IMPROVE OUR HOME BUILDING DEBT TO CAPITALIZATION RATIO, WHICH NET OF CASH WAS 55.8% AT MARCH 31st, 2001, COMPARED TO 57.8% AT MARCH 31st, 2001. THE 55.8 SHOULD HAVE BEEN IN MARCH 31st, 2002. WE'RE GOING TO CONTINUE TO PARTNER WITH OUR SUPPLIERS, VENDORS, AND SUBCONTRACTORS TO MUTUALLY CAPITALIZE ON ECONOMIES OF SCALE AS WE CONTINUE TO GROW TOGETHER.

WE WILL CONTINUE TO CAPITALIZE ON HAVING PROPERLY POSITIONED D.R. HORTON TO ACHIEVE 25 CONSECUTIVE YEARS OF GROWTH AND INCREASED PROFITABLY IN FISCAL YEAR 2002, AND WE'LL CONTINUE TO WORK TOWARD REACHING 100 CONSECUTIVE QUARTERS IN OUR FOURTH QUARTER OF WHEN WE WILL ECLIPSE WAL-MART'S RECORD OF 99 QUARTERS. WE WILL CONTINUE TO OUTEARN OUR COST OF CAPITAL. SINCE WE WENT PUBLIC, WE HAVE HAD A POSITIVE EPA, ECONOMIC VALUE-ADDED EACH AND EVERY YEAR. FINALLY, WE'RE GOING TO FOCUS ON ONE OF OUR INTERNAL GOALS. JUST TO MENTION TO YOU, WE NEVER MISSED AN INTERNAL GOAL THAT DON HORTON HAS SET FOR US IN THE HISTORY OF THE COMPANY. LAST NOVEMBER, WE SET A NEW INTERNAL GOAL, AND SPECIFICALLY, THAT WAS TO EARN REVENUES OF $8 BILLION OF FISCAL YEAR 2003, AND TO BE THE FIRST HOME BUILDER OF 50,000 UNITS WITH REVENUES OF $10 BILLION BY FISCAL YEAR END 2004. THESE GOALS CAN BE ACCOMPLISHED BY CONTINUING OUR SUCCESSFUL ACQUISITION STRATEGY AND CONTINUING TO INTERNALLY GROW OUR EXISTING DIVISIONS 15 TO 20% A YEAR. OUR CLEAR GOAL IS TO CONTINUE TO DISTANCE OURSELVES FROM OUR COMPETITORS AS WE HAVE DONE. THAT CONCLUDES OUR PORTION OF THE CONFERENCE CALL. AT THIS POINT IN TIME, WE WILL ENTERTAIN ANY QUESTIONS THAT YOU HAVE.

AT THIS TIME, I WOULD LIKE TO REMIND EVERYONE, IN ORDER TO ASK A QUESTION, PLEASE PRESS STAR AND THEN THE NUMBER ONE ON YOUR TELEPHONE KEYPAD. OUR FIRST QUESTION COMES FROM THE LINE OF IVY ZELMAN FROM CREDIT SUISSE FIRST BOSTON.

GOOD MORNING. I HAVE A FEW HOUSEKEEPING ITEMS, IF I MAY. CAN YOU TELL ME WITH RESPECT TO THOSE CHARGES THAT HIT THE GROWTH MARGIN, THE 61 MILLION IN TOTAL AND I THINK YOU MENTIONED, HOW MUCH OF THAT WAS RELATED TO WRITING OF THE ASSETS ON THE PREMIUM THAT YOU PAID FOR SCHULER? IN THE QUARTER, IT'S 33.6 MILLION, AND WE EXPECT FOR THE YEAR FOR IT TO BE 61 MILLION.

OKAY, 33, RIGHT. THAT IS ENTIRELY RELATED TO THE WRITE-UP TO FAIR VALUE OF SCHULLER'S INVENTORY.

AND THE 61 WOULD ALSO BE THE TOTAL AMOUNT, THEREFORE, WRITTEN UP? YEAH.

AND HOW MUCH WAS THE TOTAL PREMIUM, OR WHAT WILL YOU RECOGNIZE IN GOODWILL? THE TOTAL GOODWILL IS 427 MILLION.

DON, REALIZING THE GOALS YOU SET INTERNALLY, CAN YOU ELABORATE ON MAYBE ADDITIONAL GOALS IN ADDITION TO EARNING 8 BILLION IN REVENUES AND HAVING 50,000 CLOSINGS IN '04. CAN YOU TELL ME WHAT THAT WOULD TRANSLATE FOR GOALS ON RETURN IN INVESTED CAPITAL?

ACTUALLY, STACEY HAS DONE AN ANALYSIS ON THAT. SHE CAN EXPLAIN THAT VERY CLEARLY.

ONE OF OUR GOALS IN ACHIEVING THAT KIND OF GROWTH IS TO IMPROVE ON RETURN ON INVESTED CAPITAL. IF YOU LOOK BACK OVER THE LAST TWO, THREE YEARS, YOU WILL SEE WE HAVE CONTINUED TO DO THAT. WE ADDED A BULLET POINT TO OUR BONUS PLAN FOR RETURN ON INVENTORY TO ENCOURAGE OUR DIVISION TO FOCUS ON THE RETURN. THE RETURN ON INVESTMENT IS ONE OF THOSE THINGS THAT OUR OPERATING COMMITTEE, WHICH MAKES ASSET ALLOCATIONS DECISIONS, IS LOOKING AT BEFORE WE DECIDE TO SPEND ADDITIONAL ASSETS INTO ANY DIVISION, AND WE'RE LOOKING AT DIFFERENT WAYS TO DO THAT, WHETHER IT'S STRUCTURING CONTRACTS, AS OPTIONS RATHER THAN PURCHASES, OR WHETHER WE CAN PURCHASE A PIECE OF LAND AND OPTION THE REMAINDER OF IT, IF IT'S A LARGER CHUNK THAN WE WOULD LIKE TO PUT ON OUR BALANCE SHEET, AND WE'RE LOOKING AT WORKING ON DEALS WHERE WE WOULD CLOSE ON A HOUSE TO A THIRD PARTY.

BUT THERE AREN'T ANY OFFICIAL STATED GOALS? IF YOU RETURN ON CAPITAL THE WAY WE CALCULATED IT, EVEN WITH AVERAGE CAPITAL TODAY, WAS 12%. THERE'S NOT NECESSARILY A STATED GOAL OF 300 PLUS BASIS POINTS FROM THE CURRENT LEVELS OR ANYTHING LIKE THAT, STACEY? OUR STATED GOAL, IVY, IS TO CONTINUE THE IMPROVEMENT THAT WE EXPERIENCED OVER THE LAST TWO OR THREE YEARS, AND WE HOPE IN THE NEXT TWO OR THREE YEARS, WE HOPE TO ACHIEVE GREATER IMPROVEMENT.

OKAY, AND THE GOODWILL, THOUGH, THAT DOES DILUTE RETURNS ON CAPITAL, SO REALISTICALLY, ADDING THE 427 MILLION IN GOODWILL WILL HAVE A NEGATIVE IMPACT, IF I'M CORRECT. ISN'T THAT CORRECT?

THAT DOES ADD TO OUR CAPITAL, AND WE'RE ADDRESSING THAT IN THOSE OTHER BULLET POINTS THAT WE MENTIONED.

NOW, THE 33 MILLION THAT YOU TOOK IN THE WRITE-UP, WAS THAT, YOU KNOW, A DECISION WHERE THE ONLY AMOUNT THAT YOU WROTE UP WAS WHAT YOU WERE SUPPOSED TO WRITE UP, OR WAS THE ACCOUNTING SUGGESTED, OR COULD YOU HAVE WRITTEN UP MORE AS A CHOICE, IF YOU WANTED TO? IVY, IN OUR ANALYSIS OF THEIR INVENTORY AND, AND THE ANALYSIS INCLUDES A LOT OF COMPONENTS. YOU LOOK AT LAND HOLDINGS, BUT A MAJOR COMPONENT IS YOU LOOK AT THE INVENTORY UNDER CONSTRUCTION, AND ESSENTIALLY, YOU CALCULATE WHAT THE EARNED PROFIT IS ON THAT INVENTORY, THE MANUFACTURING PROFIT IS ON THAT INVENTORY AS OF FEBRUARY 21st, AND ESSENTIALLY, WRITE THAT UP TO THAT FAIR VALUE AT THAT POINT IN TIME., AND THEN THOSE WRITE-UPS COME BACK THROUGH AS A CHARGE TO COST OF SALES AS THOSE HOMES CLOSE, AND THAT IS A SIGNIFICANT PORTION OF THE OVERALL WRITE-UP OF THE ASSETS. THAT'S THE SAME ANALYSIS WE'VE DONE WITH EVERY ONE OF OUR ACQUISITIONS.

I UNDERSTAND. I GUESS THE QUESTION, THOUGH, IS THERE A CHOICE THAT YOU COULD HAVE WRITTEN UP MORE THAN YOU DID? WHAT YOU WRITE UP COMES OUT OF GOODWILL, CORRECT? CERTAINLY. THERE ARE MANY DIFFERENT METHODOLOGIES YOU CAN GO ABOUT AND IN ANALYZING FAIR VALUE OF ASSETS. WE WORKED WITH OUR ACCOUNTANTS IN DETERMINING AN APPROPRIATE METHODOLOGY, AND APPLIED IT CONSISTENT ACROSS THE BOARD TO SCHULLER'S ASSETS. WHICH IS THE WAY WE HAVE ALWAYS DONE, IVY.

THANK YOU.

YOUR NEXT QUESTION COMES FROM THE LINE OF JOSEPH SROKA OF MERRILL LYNCH.

GOOD MORNING. CONGRATULATIONS ON THE QUARTER. THANK YOU.

DO YOU FEEL THAT DUE TO WEATHER MAYBE IN DIFFERENT PARTS OF THE U.S., DID YOU TURN ANY OF THE BACK LOG FASTER THAN YOU HAD ANTICIPATED, AND DO YOU ANTICIPATE THAT, YOU KNOW, THE WAY YOUR BACK LOG IS ARRAYED RIGHT NOW, YOU MAY BE SKEWED A LITTLE MORE TOWARD THE FOURTH QUARTER THAN THE THIRD QUARTER? WE DON'T EVER LIKE TO GIVE WEATHER REPORTS, BUT OBVIOUSLY, THE WEATHER WAS FAVORABLE IN MOST PARTS OF THE COUNTRY, AND FRANKLY, OUR PEOPLE, OUR SUBCONTRACTORS, COMPLETED HOMES A LITTLE FASTER THAN WE ANTICIPATED IN THE SECOND QUARTER, SO STACEY AND I CONCLUDED THAT WE PROBABLY STOLE A FEW CLOSINGS FROM THE THIRD QUARTER THAT ROLLED INTO THE SECOND QUARTER.

OKAY, AND THEN LAND SALES ARE ABOUT $41 MILLION. IS THAT AN ISSUE OF MAYBE ADJUSTING THE PORTFOLIO POST THE SCHULER CLOSING, AND DO YOU ANTICIPATE THAT YOU MIGHT HAVE HIGHER THAN NORMAL LAND SALES IN THE REMAINDER OF THE YEAR? NO, REALLY, IT'S JUST A FUNCTION OF US DIVISION BY DIVISION LOOKING AT OUR LAND INVENTORIES AND LAYING OFF LAND POSITIONS THAT ARE IN EXCESS OF OUR STATED GOALS AND ESPECIALLY WHERE WE CAN DO IT AS A PROFIT. WE ANALYZED SCHULLER'S LAND POSITION, AND WE COMBINED OUR LAND POSITIONS TOGETHER, AND WE'RE CURRENTLY SITTING ON ABOUT 3 1/2 YEAR INVENTORY OF LAND AND LOTS, WHICH WE STILL BELIEVE IS VERY CONSERVATIVE RELATIVE TO {HORT}EN AND RELATIVE TO THE INDUSTRY, SO REALLY, ESSENTIALLY JUST OPPORTUNISTIC SITUATIONS WHERE WE CAN SELL A LAND POSITION FOR A PROFIT THAT'S MORE THAN WE MAY NEED FOR THE FORESEEABLE FUTURE.

LAST QUESTION. ON THE MORTGAGE, UNDERWRITING, YOU NOTE A BREAK BETWEEN FIXED AND ADJUSTABLES FOR THE QUARTER? Stacey Dwyer WILL PROBABLY GET THAT NUMBER. WE HAVE IT SOME PLACE HERE. HERE WE GO.

WELL, ACTUALLY, {27S} NOT ON THE PIECE OF PAPER I WAS SCRAMMING TO FIND. CAN WE GET BACK TO YOU?

YEAH, GOOD QUARTER.

YOUR NEXT QUESTION COMES FROM THE LINE OF TIMOTHY JONES WITH HC WAYNERIGHT.

GOOD MORNING. GOOD MORNING.

SAM, WOULD YOU REPEAT THAT CALCULATION FOR ME, PLEASE?

MOTHER OF GOD, NEVER MIND. NORMAL BUILDERS ON ACQUISITIONS AND WRITEOFFS TAKE 1% OF, AND IT BASICALLY HITS 1% OF SALES, THE ADJUSTMENTS OVER A WOULD-QUARTER PERIOD. YOU'RE HITTING FOR TWO PERCENTAGE POINTS. DOES THIS HAVE TO DO WITH EITHER THE PRICE THAT YOU PAID OR THE PERCENTAGE OF THE COMPANY'S PROFITABILITY RELATIVE TO YOUR TOTAL?

IT REALLY HAS A LOT TO DO WITH THE NUMBER OF HOMES THAT SCHULER DID CLOSE POST TO MERGER, AND THEY DID CLOSE A SIGNIFICANT NUMBER {BER} OF HOMES DURING THAT PERIOD OF TIME, AND THE CHARGE DIRECTLY RELATES TO THE WRITE-UP RELATED TO THOSE HOMES.

OKAY. YOUR $1,080 SAVES PER HOME, THAT'S ABOUT 50/50 VOLUME REBATES AND THE OTHER HALF JUST A LOWER PRICE, IS THAT CORRECT?

I THINK YOU'RE GOING TO SEE THAT SKEWING MORE TOWARD LOWER PRICES BECAUSE THEN THE MONEY NEVER GOES OUT THE DOOR.

THEN THE VOLUME REBATES?

YES. I'M SURPRISED AT THAT. NO, I'M NOT. THIRD, YOUR GOAL TO GAIN 10% OF EACH MARKET IS VERY, VERY AGGRESSIVE. YOU IMPLIED YOU HAD 6.7% OF CALIFORNIA. THAT'S THE ENTIRE CALIFORNIA MARKET, I SUSPECT. NOT INCLUDING THE MARKETS YOU'RE NOT IN. I MEAN, CAN YOU TELL ME OF YOUR SUBDIVISIONS RIGHT NOW, ROUGHLY, HOW MANY DO YOU HAVE A 10% MARKET SHARE OF? WHAT PERCENTAGE? I KNOW YOU WON'T HAVE THE EXACT NUMBER. FRANKLY, TIM, WE HAVE OF OUR 52 OPERATING PROFIT CENTERS OUT THERE, AND WE OPERATE NOW IN 42 DIFFERENT MARKETS, BASICALLY, WE HAVE FOUR MARKET IN WHICH WE ARE DOUBLE DIGIT PERCENTAGE MARKET SHARE, AND THEY INCLUDE AUSTIN, SAN ANTONIO, DENVER, AND THE DALLAS-FT. WORTH MARKET. AND, CLEARLY, WITH OUR ABILITY ON THE COST-SAVE SIDE AND MARKET PENETRATION SIDE, WE BELIEVE THAT 10% MARKET SHARE IN MARKETS WHERE WE HAVE A LOT OF GOOD OPERATORS IS SOMETHING THAT WE CAN CAPITALIZE OVER THE NEXT TWO TO THREE YEARS.

OF THE 52 DIVISIONS, WHAT WOULD YOU SAY HAVE OVER -- JUST A GUESS NOW -- OVER 5%? HALF, MORE? NO. I WOULD SAY PROBABLY SOMEWHERE LESS THAN A THIRD.

REALLY, LESS THAN A THIRD STILL AT 5%? YES, SIR.

OKAY, SO THAT'S WHY I SAID THAT I THOUGHT THE 10% -- THIS IS NOT A SHORT-TERM GOAL, OBVIOUSLY. NO, IT'S NOT A SHORT-TERM GOAL, AND CLEARLY, WE'RE INTERESTED IN GAINING A 10% MARKET SHARE WHERE WE CONTINUE TO OUTGROW THE TOP LINE AT THE BOTTOM LINE.

AND LAST THING, THE COST SAVINGS THAT SCHULER GETS RELATIVE TO YOUR $1,800 PER HOME, COULD YOU GIVE ME A NUMBER THERE?

NOT YET BECAUSE THEY'RE NOT ON OUR TRACKING DATA BASE. THAT'S ONE OF THE THINGS WE EXPECT TO HAPPEN IN THE NEXT QUARTER. CLEARLY, TIM, WITH A SCHULER AT RUN RATE OF 55 UNITS AND ADDING HORTON'S INTERNAL RUN RATE AT 25,000 UNITS BASICALLY ON A FORWARD 12-MONTH BASIS, WE'RE LOOKING AT A 31,000 RUN RATE, AND I CAN TELL YOU OUR SUPPLIER, VENDORS, AND SUBCONTRACTORS ARE LOOKING AT THAT OPPORTUNISTICLY, AND WE ANTICIPATE SOME MAJOR COST SAVES.

THANK YOU.

YOUR NEXT QUESTION COMES FROM THE LINE OF CARL REICHARDT WITH BANC OF AMERICA SECURITIES.

HI, GUYS. JUST A COUPLE OF CLEANUPS, FIRST OF ALL. WILL YOU TELL ME WHAT SCHULER EMERALD FORTRESS CONTRIBUTED OR WHAT THEIR AVERAGE SELLING PRICE WAS FOR CONTRIBUTION THIS QUARTER IN DELIVERIES? OKAY, ON DELIVERIES?

YEAH. THE AVERAGE SELLING PRICE FOR SCHULER WAS 355,000, AND THE AVERAGE SELLING PRICE FOR EMERALD FORTRESS WAS 173,000 PER UNIT.

OKAY. AND UNIT CONTRIBUTION? AND UNIT CONTRIBUTION, SCHULER CLOSED 1,127 HOMES, AND EMERALD FORTRESS CLOSED 534 HOMES.

THANK YOU. AND THEN I THINK, I ASSUME THIS IS SCHWAB'S, BUT THE OTHER EXPENSE LINE BUT TURNS INTO OTHER INCOME FOR HOME BUILDING AND OTHER INCOME FOR FINANCIAL SERVICES, WHAT WERE THOSE? A BULK OF THAT WAS A WRITE-UP OF OUR INTEREST RATE SWAPS TO MARKET VALUE.

OKAY. GREAT. AND THEN JUST, ALSO, ONE LAST CLEANUP, OWNED AND OPTION LOTS TO SPLIT. ABOUT 54% OWNED AND ABOUT 46% OPTION. OKAY. SETTING UP 3 1/2 YEARS, CARL.

WELL, IF YOU KEEP ABSORBING UP THIS FAST, IT WILL BE LESS THAN THAT. I HAVE A QUESTION ABOUT THE CUSTOMIZATION FOCUS THAT WE TALKED ABOUT BEFORE, HALF YOUR BUSINESS PRIOR TO SCHULER. IS THAT SOMETHING YOU THINK YOU CAN MIGRATE INTO SCHULLER'S MARKETS, OR IS THAT DIFFICULT TO DO JUST BECAUSE OF THE BUILDING IN CALIFORNIA? I THINK IT'S GOING TO BE DIFFICULT IN CALIFORNIA JUST AS IT HAS BEEN DIFFICULT WITH US IN CALIFORNIA, BUT THE GREAT THING ABOUT SCHULER IS THEY HAVE A VERY, VERY LARGE AND PROFITABLE OPERATION IN COLORADO, AND SO WE THINK THAT THAT TRANSITIONS WELL THERE, AND ALSO UP INTO THE PORTLAND, AS WELL AS IN THE SEATTLE MARKETS. WE THINK THAT TRANSITIONS VERY WELL UP THERE.

OKAY, GREAT. THE LAST QUESTION IS, THE SG&A WAS CLEARLY MUCH BETTER THAN WE THOUGHT. FIXED COST AT SCHULER WAS GREAT. HOW ARE YOU COMING ON IN DUPLICATE OF OVERHEAD COSTS CURRENTLY? HAVE YOU GOTTEN THEM OUT OF THE SYSTEM YET? WHEN DO YOU ANTICIPATE THAT WILL FINISH UP? IN TERMS OF ELIMINATING EXCESS COSTS?

YES, SIR. WE'RE WORKING ON THAT VERY AGGRESSIVELY, AS WE SPEAK. WE HAVE RICK OUT IN ARRAPPCO AT THE SCHULER OFFICE, AND I WOULD EXPECT OVER THE NEXT THREE MONTHS, THAT WE WILL HAVE ACHIEVED A LOT OF OUR COST SAVES THAT WE ANTICIPATED IN TERMS OF JUST OVERHEAD STRUCTURE.

GREAT. THANKS SO MUCH, DON. YOU'RE WELCOME.

YOUR NEXT QUESTION COMES FROM THE LINE OF DAVID JARRETT WITH CREDIT LINE A SECURITIES.

CONGRATULATIONS ON A GREAT QUARTER. THANK YOU, DAVID.

A COUPLE OF QUESTIONS. WHERE DO YOU SEE PRICING POWER, AND SECOND OF ALL, THE MORTGAGE CAPTURE RATE, I WAS VERY SURPRISED TO SEE YOU GET UP TO 70%. HOW MUCH WAS THAT A YEAR AGO? ALSO, HOW WAS THAT FACTORED IN WITH SCHULER AND THE OTHER ACQUISITIONS? WELL, I WILL LET STACEY TAKE THE MORTGAGE SIDE FIRST, AND THEN I WILL TAKE THE PRICING POWER.

OKAY.

THE CAPTURE RATE OF 70, WE COMPARED TO 60 TO 65% LAST YEAR, AND THAT IS THE CAPTURE RATE IN THE DIVISIONS WHERE WE HAVE MORTGAGE OPERATIONS, AND FOR THIS QUARTER, THOSE NUMBERS DO INCLUDE WHAT WE SAW WITH SCHULER FROM FEBRUARY 21st FORWARD.

DO YOU HAVE A LOT OF ROOM TO GO IN TERMS OF PENETRATING THE SCHULER AREAS? YES. BASICALLY, THE SCHULER OPERATION WITH THE EXCEPTION OF COLORADO HAD A LIMITED MORTGAGE OPERATION, AND OBVIOUSLY, THEY ARE LARGE IN CALIFORNIA, AND WE'RE IN THE PROCESS OF NOT ONLY INCLUDING SCHULER, BUT OUR OWN UNITS IN CALIFORNIA UNDER OUR OWN MORTGAGE COMPANY, AND THAT SHOULD BE FULLY REALIZED MORE IN FISCAL YEAR '03 THAN IT WILL IN '02.

THAT SHOULD BE A HUGE PLUS, I WOULD THINK. YES, IT WILL BE.

THANKS. ON THE PRICING POWER SIDE, AS WE'VE TALKED ABOUT BEFORE, WE'RE DEALING WITH A LIMB THE -- LIMITED SUPPLY OF PLANNED AND LOTS, ESPECIALLY IN MARKETS LIKE CALIFORNIA, CHICAGO, COLORADO, EVEN IN TEXAS. WE HAVE PRICING POWER IN THOSE MARKETS WHERE IT'S JUST BECOMING INCREASINGLY DIFFICULT, AS YOU KNOW TO GAIN OUR ENTITLEMENTS, AND WE'RE BACK TO CAMP-OUTS IN NORTHERN CALIFORNIA, CAMP-OUTS IN SOUTHERN CALIFORNIA. THE BOTTOM LINE IS, SAME THING IN DENVER. SO WE FEEL LIKE THE PRICING POWER, WE STILL HAVE PRICING POWER LEFT IN THIS YEAR, AND EVEN INTO NEXT YEAR, BUT AS YOU KNOW, THE OTHER SIDE OF THAT EQUATION WHICH TRANSLATES INTO OUR GROSS MARGINS IS NOSE ARE COSTS TO GOODS PURCHASED, AND AS YOU CAN TELL IN THIS FIRST {HAFT} OF THE YEAR, WE IMPROVED OUR COST-SAVES BY $100 A UNIT UP TO $1,080 A UNIT. OVERALL THE, PRICING POWER IS STRONG AND COST OF GOODS PURCHASED, SAVINGS ARE STILL AVAILABLE OUT THERE FOR US.

GOOD COMBINATION. YES, SIR.

THANKS. THANK YOU.

YOUR NEXT QUESTION COMES FROM THE LINE OF CHRIS WINHAM WITH GOLDMANN SACHES.

GOOD MORNING. GOOD MORNING, CHRIS.

YOU CAN COMMENT A LITTLE BIT ON SOME OF THE GROWTH GOALS? YOU KNOW, TO GET TO THAT 50,000-UNIT LEVEL, IT'S KIND OF -- IT'S CREATING ANOTHER TOP FIVE HOME BUILDER BETWEEN NOW AND 2000, RIGHT TO FIND AN INCREMENTAL OTHER 20 UNITS OR SO. CAN YOU TALK ABOUT YOUR COMFORT IN ACTUALLY HAVING THE LAND, BEING ABLE TO GET THE LAND, AND GET IT ENTITLED TO REACH THAT TYPE OF LEVEL? CAN YOU ALSO TALK ABOUT THE AMOUNT OF CAPITAL IT'S GOING TO TAKE TO GET THERE, AND WHAT THOSE SOURCES OF CAPITAL ARE LIKELY TO BE? ACTUALLY, ON THE LAND SIDE, YES, AND ONE OF THE THINGS WE'VE DONE OVER THE LAST TWO, THREE YEARS IS THE ENTITLEMENT PROCESS IS LINKED, AND MOST OF OUR DIVISIONS SIMPLY ADDED MORE PEOPLE TO THE ENTITLEMENT PROCESS. ON THE CAPITAL SIDE OF IT, CLEARLY, AS STACEY MENTIONED, WE'RE WORKING MORE CLOSELY WITH OUR THIRD-PARTY DEVELOPERS, AND WE'RE LOOKING INTO WAYS TO ENTER INTO MORE ROLLING CONTRACTS WITH THIRD-PARTY DEVELOPERS, AND OUR CAPITAL NEEDS ON AN ONGOING BASIS WON'T BE TOO MUCH DIFFERENT THAN THE PAST. LAST YEAR, WE RAISED $6 MILLION IN DEBT, AND WE WILL PROBABLY HAVE THAT NEED ON A GOING-FORWARD BASIS OVER THE NEXT COUPLE OF YEARS TO GET TO THAT 500,000 -- 50,000 UNITS?

CAN YOU COMMENT ON ORDER TRENDS AND CANCELLATIONS? IF WE BACK OUT THE ACQUISITIONS, ORDER GROWTH WAS KIND OF IN THE SINGLE DIGITS FOR THE QUARTER. I THINK IT'S 3 OR 4%. CAN YOU COMMENT ON KIND OF WHAT YOU ARE SEEING IN THE LOCAL MARKETS? ACROSS THE COUNTRY, OBVIOUSLY, CALIFORNIA IS STILL VERY STRONG. COLORADO IS STRONG, BUT ONE OF THE THINGS ADVERSELY AFFECTING OUR INTERNAL OR OUR SAME-STORE GROWTH RATE, OBVIOUSLY IN DENVER AS WE MENTIONED, END OF THE FIRST QUARTER AND NOW AT THE END OF THE SECOND QUARTER, OUR DENVER DIVISIONS ARE OPERATING IN APPROXIMATELY ONE/THIRD THE NUMBER OF SUBDIVISIONS THEY WERE OPERATING IN THIS TIME LAST YEAR. THEY DIDN'T GET THEIR SUBDIVISIONS DELIVERED BEFORE THEY SHUT DOWN THE ASPHALT PLANTS AND, WE EXPECT IN THE SPRING FOR THOSE TO COME BACK IN SALES THAT ARE INCREASING AT A FASTER RATE. ALTHOUGH, I WILL TELL YOU THAT WE'RE NOT DEFENSIVE ABOUT DENVER BECAUSE OUR PROFITABILITY LEVELS AND OUR THREE DIVISIONS IN DENVER HAVE EXCEEDED BUDGET FROM A PRE-TAX INCOME PERSPECTIVE YEAR-TO-DATE. OBVIOUSLY, IN TEXAS, THE MARKET IS VERY STRONG. ARIZONA, CLEARLY, STACEY MENTIONED TO YOU THAT OUR SALES WERE UP IN ARIZONA TO THE EXTENT OF 18%, AND WE'RE SEEING STRONG GROWTH EVEN IN OUR FLORIDA MARKETS. JACKSONVILLE IS EXTRAORDINARILY STRONG. SOUTH FLORIDA IS VERY STRONG. ORLANDO IS VERY STRONG, AND PROBABLY ONE OF OUR STELLAR PERFORMERS THIS YEAR IS ATLANTA. IT'S PRODUCED ALMOST EIGHT TIMES THE AMOUNT OF PRE-TAX INCOME THEY PROJECTED THEY WERE GOING TO PRODUCE. SO STRONG MARKETS ACROSS THE COUNTRY.

OKAY. THAT STRENGTH NOT WITHSTANDING, THEN WHY DO WE HAVE ORDER GROWTH HAVING SLOWED IN THE QUARTER AND KIND OF ACQUISITIONS BEING 3 OR 4% QUARTER GROWTH? TWO THINGS, AND ONE OF THEM OBVIOUSLY IS DENVER, AS I MENTIONED. ON A YEAR OVER YEAR BASIS, WE'RE IN ONE THIRD OF THE NUMBER OF SUBDIVISIONS WE WERE IN THIS TIME LAST YEAR. SAME THING IN FIEND NATION, WE HAD DELAYS IN DELIVERING SUBDIVISIONS THERE. AND THAT'S REALLY THE MAJOR IMPACT IN OUR MARKETS. THE THING I WOULD POINT OUT, CHRIS, LAST YEAR WAS A REAL RECORD IN SALES FOR US.

LASTLY, LOOKING AT THE FINANCIAL SERVICES BUSINESS. OBVIOUSLY, THE MARGINS IN THAT BUSINESS HAVE GROWN SIGNIFICANTLY OVER THE LAST YEAR, 18 MONTHS. HOW MUCH OF THAT IS DUE TO THE SHAPE OF THE YIELD CURVE, AND IF THE YIELD CURVE FLATTENS OUT, DOES SOME OF THAT PROFITABILITY EASE BACK TO WHERE WE WERE IN LATE 2000 OR EARLY 2001, OR IS IT THE VOLUME YOU'VE BEEN ABLE TO PUT OVER THAT COST STRUCTURE THAT HAS PRO-BEEN PROVIDING THE MARGINS? IF IT LOWERS SOME THAT WILL AFFECT OUR MARGINS AND OUR FINANCIAL SERVICES, BUT THE THING THAT IS REALLY POSITIVELY AFFECTING OUR MARGINS IN FINANCIAL SERVICES IS OUR COMMITMENT ALMOST TWO YEARS AGO TO ENTER TWO HUGE MARKETS, WHICH WERE CHICAGO AND ATLANTA, AND AS YOU KNOW, IN THE MORTGAGE BUSINESS, IT TAKES A WHILE FOR YOU TO BUILD YOUR BACK LOG, AND WHAT WE'RE SEEING NOW IS THE PAYBACK FROM THAT BUILDUP OF INVENTORY IN THE FORM OF PEOPLE IN OFFICES TO GENERATE THOSE MORTGAGES I WOULD SAY NOT THAT IT MAY FLATTEN, WE WILL ACHIEVE ECONOMIES OF SCALE BY CONTINUING TO GROW THOSE BIG DIVISIONS AND ALSO ROLLING THE MORTGAGE OPERATION.

SO YOU WOULD STILL BE ABLE TO EXPECT THE PRE-TAX MARGIN IN THAT BUSINESS TO KIND OF THE 45% RANGE? YOU KNOW, I HAVE GREAT EXPECTATIONS. I WOULD SAY THAT THEY HAVE THE ECONOMIES OF SCALE WORKING IN THEIR FAVOR, AND THEY'RE HITTING ON ALL CYLINDERS NOW, AND I WOULD CONTINUE THEM TO DO SO, AND I HOPE THE PRESIDENT OF THE HI FINANCIAL SERVICES IS LISTENING.

GREAT, THANK YOU.

YOUR NEXT QUESTION COMES FROM THE LINE OF STEVEN KIM WITH SALOMON SMITH BARNEY.

GREAT JOB, GUYS. THANK YOU, STEVE.

FIRST QUESTION RELATES TO THE SECOND HALF PROJECTION FOR PURCHASE ACCOUNTING OF ABOUT $27 MILLION. CAN YOU GIVE US AN INDICATION OF HOW THAT'S GOING TO SPREAD OVER THE THIRD AND FOURTH QUARTERS IN. IT WILL BE SLIGHTLY LARGER IN THE THIRD QUARTER BASED ON PROJECTED CLOSINGS GOING FORWARD. SOMEWHERE IN THE 60/40 RANGE, 60% IN THE THIRD QUARTER, 40% IN THE FOURTH.

GREAT, AND WITH RESPECT TO THE SAVINGS, YOU KNOW, FROM EFFICIENCIES AND NATIONAL PURCHASES, DISCOUNTS, ET CETERA, YOU INDICATED YOU WERE RUNNING ABOUT 1,800 VERSUS 1,700 IN '01. OBVIOUSLY, YOU KNOW, THAT'S NOT INCORPORATING PROBABLY QUITE AS MUCH OPPORTUNITIES THAT HAVE BEEN GENERATED AT SCHULER RELATIVE TO HORTON. I GUESS I'M CURIOUS AS TO WHAT DO YOU THINK THE TUNES ARE IN THE SCHULER HOMES THAT YOU'RE GOING TO BE ADDING NOW? WELL, I WILL JUST GIVE YOU THE NUMBER THAT OUR PURCHASING MANAGER RICK ROWHOUSE AND I AGREED ON AND THAT WAS WE AGREED THAT WE WOULD PRE-SCHULER, STEVE, HAVE COST SAVES OF $45 MILLION OVER THE 38 MILLION WHICH WE EXPERIENCED IN '01, AND WITH SCHULER, WE ANTICIPATE ADDING ANOTHER 10 MILLION TO THAT 45 MILLION SO WE'RE ANTICIPATING ON A 12-MONTH FORWARD RUN RATE OF ACHIEVING $55 MILLION IN COST SAVES. 45 MILLION HORTON, $10 MILLION ON SCHULER.

CAN YOU GIVE US AN INDICATION AS THE HOW $10 MILLION IS ACHIEVED? JUST THE BIG PIECES. WELL, I CAN TELL YOU THAT, FIRST OF ALL, YOU HAVE TO BACKTRACK A LITTLE, AS I'M SURE YOU'RE AWARE, PRIOR TO APRIL OF THIS YEAR, SCHULER OR LAST YEAR, SCHULER WAS ABOUT A 2,500 UNIT BUILDER AND ADDED ANOTHER 5,000 FROM WESTERN PACIFIC. SO ON A NATIONAL PURCHASING, THEY'RE ESSENTIALLY OPERATING A 2,500-UNIT BUILDER, AND WHEN WE ROLLED THAT 2,500 IN WITH OUR 25,000, I MEAN, WE'RE UP TO 31,000, AND IT STARTS RIGHT WITH AIR CONDITIONING UNITS. IT STARTS WITH PLUMBING FIXTURES. IT GOES TO PLUMBING AND ROOFING MATERIALS. IT GOES TO DOORSTEPS AND DOOR LOCKS. WE'RE ENTERING INTO LUMBER CONTRACTS WITH VARIOUS, ON A REGIONAL BASIS WITH DIFFERENT LUMBER COMPANIES AND ALSO ON A SHEETROCK BASIS. I JUST SIGNED TWO NATIONAL PURCHASES CONTRACTS THIS MORNING. ONE OF THEM WAS ON STONE, WHICH WE USE ON THE FRONT OF OUR HOUSES IN A NUMBER OF MARKETS, AND THE OTHER WAS ON GRANITE COUNTERTOPS IN A NUMBER OF OUR MARKETS. IT RUNS A WIDE RANGE, BUT BOTTOM LINE IS START WITH LUMBER, SHEETROCK, DOOR AND LOCK SETS, AS WELL AS ROOFING MATERIAL. AND APPLIANCES, YES. THANK YOU, SAM.

GREAT, AND I GUESS LAST QUESTION RELATES TO A COMMENT YOU MADE WITH RESPECT TO COMPETITIVE ADVANTAGES THAT YOU SAW FOR THE LARGER BUILDERS, SUCH AS YOURSELF. YOU INDICATED THAT YOUR IMPROVED PRESENCE IN THE MARKETPLACE AND YOUR RECOGNIZED PRESENCE, BASICALLY, LED TO INCREASED LAND AVAILABILITY FOR YOU. I WAS WONDERING IF YOU COULD SORT OF CLARIFY THAT A LITTLE BIT. GIVE US AN INDICATION OF WHAT REAL ADVANTAGES LARGER BUILDERS, SUCH AS, D.R. HORTON HAVE IN A MARKETPLACE, PARTICULARLY WHERE YOU MAY HAVE LAND CONSTRAINTS. CLEARLY, IF YOU TAKE A LOOK AT THE DENVER MARKET IN PARTICULAR, POST THE SCHULER DEALS WITH MELODY HOMES, WE'RE AT 22% OF THE DENVER MARKET. CLEARLY, IN DENVER, WHEN SOMEONE'S LOOKING TO SELL A PIECE OF LAND, I THINK THEY'RE CLEARLY LOOKING FOR ONE OF THE LARGER USERS OF LAND IN THE MARKETPLACE. ALSO, BY VIRTUE OF THE FACT THAT WE'RE WRITING OUR CONTRACTS CONTINGENT ONLY UPON ENTITLEMENTS AS OPPOSED TO NUMBER OF SMALLER AND MEDIUM-SIZED BUILDERS THAT ARE WRITING ON ENTITLEMENTS AS WELL AS FINANCING, IT PUTS US IN A PREFERENTIAL POSITION, NUMBER ONE, FOR THE LAND SELLER TO WANT TO SELL TO US AT A LOWER PRICE BECAUSE THERE'S A PROBABILITY THAT WE WILL BE ABLE TO GET THE ENTITLEMENTS BECAUSE OF OUR REPUTATION, AND OUR QUALITY REPUTATION, AND US BEING ABLE TO GET THE CASH AS OPPOSED TO WAITING 60 DAYS FOR A BANK COMMITTEE TO DECIDE IF THEY'RE GOING TO GIVE ME ENOUGH MONEY TO CLOSE THE SELLER'S LAND.

GREAT. THANKS VERY MUCH, GUYS.

YOUR NEXT QUESTION COMES FROM THE LINE OF GREG NEJMEH WITH DEUTSCHE BANK.

GOOD MORNING. CONGRATULATIONS, ONCE AGAIN. DON, I GUESS WHEN YOU LOOK AT FISCAL '03, AND I KNOW YOU HAVEN'T PROVIDED MUCH GUIDANCE THERE, BUT THE ABSENCE OF THE PURCHASE ACCOUNTING ADJUSTMENTS, 61 MILLION TAX AFFECTED, DIVIDED BY, I GUESS, WHAT WILL BE 159 OR 160 MILLION SHARES IN '03 PRODUCES AN INCREMENTAL PROFIT STREAM OF ABOUT 25 CENTS A SHARE, JUST ON THAT ONE ITEM. ASSUMING NO GROWTH IN THE CORE BUSINESS, IGNORING POTENTIAL COST SAVINGS, IGNORING THE MORTGAGE PROGRAMS THAT YOU MENTIONED, A, YOU CAN VALIDATE THAT NUMBER? B, CAN YOU SHARE WITH US SOME THINGS THAT YOU THINK YOU CAN ACCOMPLISH INDEPENDENT OF THE ECONOMY, INDEPENDENT OF WHAT WE MIGHT SEE ON THE ORDER FRONT? YOU ALREADY MENTIONED SOME OF THE PURCHASE SAVINGS THAT YOU ANTICIPATE, BUT HOW ABOUT THE ELIMINATION OF PUBLIC COMPANY COSTS? HOW ABOUT OPPORTUNITIES TO REFI SCHULLER'S DEBT AT HORTON'S LOWER COST OF CAPITAL? HOW ABOUT SOME OF THOSE ITEMS?

GREG, ONE THING I WANT TO TALK ABOUT IN YOUR FIRST ANALYSIS, AND WHEN YOU SAID THE PURCHASE ACCOUNTING AND DIVIDED NUMBER OF SHARES TO GET INCREMENTAL EARNINGS, ONE THING THAT WILL LOOK DIFFERENT NEXT YEAR IS FOR A FULL QUARTER, WE WOULD EXPECT SG&A TO BE BACK UP IN THE 10% RANGE, AND THAT WAS INFLATED FOR FIVE-WEEK PERIOD. SOMETHING YOU NEED TO LOOK AT.

HOW MUCH WILL THAT AFFECT THE NUMBERS, STACEY? ON THEIR HISTORIC RUN RATE, THEY'VE BEEN AROUND 11 TO 11.5%. BUT, LIKE YOU SAID, THERE ARE THINGS WE'RE FOCUSING ON TO HELP BRING THAT NUMBER DOWN. YOU'RE ABSOLUTELY RIGHT, WE WILL ELIMINATE COSTS OF DUPLICATE COMPANIES. WE WILL ELIMINATE A CORPORATE OFFICE. WE WILL REALIZE ECONOMIES OF SCALE ON INSURANCE AND PERSONNEL COSTS. THERE'S REALLY AN INFINITE LIST, YOU KNOW, TELEPHONE CONTRACTS FOR OUR LONG DISTANCE SERVICES, THE DATA LINES FOR OUR COMPUTER SERVICES. CLEARLY, THE COST OF CAPITAL IN TERMS OF THEIR 10% THAT ARE SITTING OUT THERE.

RIGHT. I GUESS THAT'S WHAT I'M ASKING IS COULD YOU GIVE US A SENSE OF THE ANTICIPATED SAVINGS FROM ALL OF THE ABOVE, WHICH SEEM TO BE REALLY LOW-BEARING FRUIT? COULD YOU QUANTIFY THAT ON A CUMULATIVE BASIS FOR US?

WHEN WE ANNOUNCED THE TRANSACTION, GREG, WE THOUGHT THOSE SAVINGS WOULD BE IN THE $30 MILLION TO $35 MILLION RANGE.

DO YOU HAVE GREATER CONVICTION NOW THAT PERHAPS THE NUMBER CAN EXCEED THAT. YES, ABSOLUTELY. I GUESS, ARE YOU GOING TO FISCAL YEAR '03'S EPS ESTIMATE?

WELL, I'M JUST THINKING ABOUT THE INCREMENTAL DRIVERS. WE'RE WORKING OFF KIND OF A 2.75 TO 2.80 BASELINE, DON. IF YOU PICKED UP SOME OF THE INCREMENTS THAT YOU DESCRIBED, CLEARLY, ONE IS THE ELIMINATION OF THE PURCHASE ACCOUNTING ADJUSTMENTS, SO THERE'S SOME SG&A OFFSET. THERE'S THE RUN RATE SAVINGS THAT YOU ANTICIPATE FROM SOME OF THE PROGRAMS YOU DESCRIBED SO, YEAH, I'M JUST TRYING TO SEE, YOU KNOW, SORT OF WHAT THE RANGE MIGHT BE IN FISCAL '03, IGNORING ASSUMED GROWTH IN YOUR MARKETS. WELL, I'VE ALWAYS BEEN COMFORTABLE, AND OUR PEOPLE IN THE FIELD HAVE MADE ME COMFORTABLE WHEN I SAY THIS. WE REITERATE, WE REALLY BELIEVE THAT FISCAL YEAR '03 THAT WE CAN ACHIEVE A 15 TO 20% IN INCOME GROWTH YEAR OVER YEAR OVER '02, AND THEY'RE GOING TO COME FROM A WHOLE HOST OF THINGS JUST AS WE'VE DISCUSSED, BUT ANOTHER THING THAT'S GOING TO HELP US CONTINUE TO GROW IS ONE OF MY FIRM CONVICTIONS, AS I KNOW IT'S YOURS IS FOR BUILDERS LIKE D.R. HORTON TO CONTINUE TO AGGREGATE THE SMALL AND MEDIUM SIZE AND EFFICIENT PRODUCERS AND BRING THEM UNDER OUR UMBRELLA, OUR COST UMBRELLA, OUR FINANCING UMBRELLA, AND MAKE THEM MUCH MORE EFFICIENT PRODUCERS, SO A WHOLE HOST OF THINGS, THE $30 MILLION TO $40 MILLION OF COST SAVES ANTICIPATED WITH SCHULER ON A 24-MONTH GOING-FORWARD BASIS, AS WELL AS OUR ABILITY, OUR PROVEN ABILITY TO CONTINUE TO AGGREGATE SMALLER AND MEDIUM-SIZE BUILDERS.

DON, YOU MENTIONED 15 TO 20% NET INCOME. OBVIOUSLY, THE SHARE COUNT YEAR OVER YEAR WILL BE GOING UP INCREMENTALLY '03 ON AN AVERAGE WEIGHTED BASIS COMPARED WITH '02. ARE YOU SUGGESTING THAT NET INCOME IS EXPECTED TO GO UP AT THAT RATE, OR EPS EVEN IN VIEW OF THE HIGHER SHARE COUNT IS EXPECTED TO GO UP AT THAT RATE? WE ANTICIPATE THE NET INCOME TO GO UP BY THAT RATE, AND FRANKLY, I THINK THE UPS WILL TRACK THAT.

FINAL POINT, WITH REGARD TO '03, AT WHAT POINT WILL YOU BEGIN TO HAVE VISIBILITY, OR DO YOU ALREADY HAVE VISIBILITY OFF THE EXISTING BACK LOG INTO '03, OR IS THAT REALLY DEPENDENT ON BOOKS THIS QUARTER? CLEARLY, WITH OUR CURRENT BACK LOG, GREG, UP $2.7 BILLION, AND I THINK THAT REPRESENTS CLOSE TO 13,000 UNITS, AND I THINK WE CLOSED SOMEWHERE CLOSE TO A LITTLE OVER 12,000 UNITS, WE'RE ANTICIPATING THAT RIGHT NOW, WE'RE BEGINNING TO BUILD OUR BACKLOG FOR '03. WE'RE FILLING SOME BUCKETS OBVIOUSLY IN THE FOURTH QUARTER OF '02, BUT WITH OUR SALES TREND, IF YOU LOOK AT THE FIRST QUARTER, WHERE WE'RE UP 22% EXCEEDED EVERY ONE OF THE OTHER TOP FIVE BUILDERS. WE DON'T KNOW WHAT THEIR SALES WERE FOR THE SECOND QUARTER YET BECAUSE THEY HAVEN'T RELEASED YET, BUT WE WILL KNOW TOMORROW, WE EXPECT THE 35% TO OUTPACE THE INDUSTRY, SO CLEARLY, FROM OUR PERSPECTIVE BASED UPON OUR LAST TWO QUARTER SALES, WE'RE VERY COMFORTABLE WITH '02, WE'RE BEGINNING TO FILL THE BUCKETS FOR '03 AS WE SPEAK.

YOUR NEXT QUESTION COMES FROM THE LINE OF TIM WILSON WITH JOELSON MERCHANT PARTNERS.

GOOD MORNING. I WILL TRY TO MAKE IT SHORT AS THE CALL HAS BEEN DRAGGING ON. DON, IF YOU COULD SORT RUN OVER THE ONE QUESTION, RUN OVER MAYBE IN YOUR BIGGEST MARKETS HOW YOU SORT OF SEE YOUR CURRENT OPERATING MARGIN LEVELS? YOU CAN GIVE NUMBERS IF YOU WANT, OR JUST GIVE SOME COLOR AS TO WHERE YOU'RE -- WE'LL CALL IT SATISFIED WHERE YOU THINK THERE ARE OPPORTUNITIES AND/OR EVEN WHERE YOU THINK THERE'S PRESSURE.

CLEARLY, I BELIEVE IN CALIFORNIA TODAY THAT WE'RE EXPERIENCING PROVEN MARGINS ESPECIALLY, AND THE BAY AREA, POST THE SCHULER DEAL, WHICH YOU KNOW BECAUSE YOU'RE OUT THERE THE BAY AREA IS COMING OFF THEIR LOWS OF MAYBE FIVE OR SIX MONTHS AGO. SCHULER MARGINS IN THE BAY AREA ARE IMPROVING VERY NICELY, ALTHOUGH, THEY NEVER GOT VERY LOW TO BEGIN WITH AND NEVERTHELESS, CALIFORNIA MARGINS CONTINUE TO INCREASE. CLEARLY, ARIZONA, OUR MARGINS ARE IMPROVING THERE. AS WELL AS THEY ARE IN COLORADO AND TEXAS. ONE AREA THAT WE'RE REALLY, REALLY IMPRESSED WITH THIS YEAR IS ATLANTA WHERE OUR MARGINS HAVE INCREASED DRAMATICALLY, PRIMARILY BECAUSE WE HAVE A DIFFERENT DIVISION PRESIDENT THERE. OUR MARGINS IN FLORIDA, AND I WAS VISITING WITH DON HORTON THE OTHER DAY, AND I THINK HE ALMOST FELL OUT OF HIS CHAIR WHEN I TOLD HIM WHAT I THOUGHT WHAT OUR MARGINS WOULD BE IN THE STATE OF FLORIDA, SOME OF THE BEST IN THE HISTORY OF THE COMPANY THAT WE MADE IN THE STATE OF FLORIDA. SOME OF THE AREAS CONTINUE WILLIAMSBURG, CINCINNATI, RICHMOND, WHERE WE'RE EXPERIENCING SLOWER SALES THERE. JUST THOSE SMALLER, WHAT I CALL, MIDWESTERN, 1078 OF THOSE SOUTHEASTERN MARKETS WHERE WE HAVE A VERY, VERY SMALL ASSET ALLOCATION CONTINUING TO RATCHET DOWNWARD THERE.

OKAY. GREAT. THANKS.

YOUR NEXT QUESTION COMES FROM THE LINE OF DARRIN RICHMOND WITH GOLDMANN SACHES.

YEAH, GOOD AFTERNOON, EVERYBODY. I GUESS I WAS A LITTLE TRIGGER SHY THERE. IT TOOK A WHILE. IF YOU GUYS COULD, JUST FILL IN THE DETAILS OF $33 MILLION CHARGE. I WOULD APPRECIATE IT. I WANT TO MAKE SURE WHAT THE WRITE-UP RELATED TO AND THEN THE CORRESPONDING CHARGE? DARRIN, IT TOTALLY RELATES TO THE WRITE-UP OF INVENTORY TO FAIR VALUE, INCLUDING THE MANUFACTURING PROFIT, AS I MENTIONED EARLIER.

HOW COME THAT WOULDN'T BE BOOKED AGAINST GOODWILL? IT WOULDN'T HAVE BEEN HELD UP ON THE BALANCE SHEET VERSUS COMING ACROSS COST TO GOODS ON THE BALANCE STATEMENT? WHAT WE'RE TALKING ABOUT HERE IS ACTUAL AFFECT OF THE COST OF SALES ON THE WRITE-UP. WHEN INVENTORIES ARE WRITTEN UP TO FAIR VALUE, YES, IT AFFECTS GOODWILL, BUT IT AFFECTS MARGINS GOING FORWARD AS THOSE HOMES CLOSE AND THE COST THAT'S NOW ON THE BOOKS, OUR BASIS THAT'S NOW ON THE BOOKS IS AT FAIR VALUE.

I UNDERSTAND. IT NEGATIVELY IMPACTS CURRENT MARGINS, AND WHAT WE'RE TALKING ABOUT IS THE IMPACT OF THE WRITE-UP ON CURRENT MARGINS.

WAS THAT ACTUALLY -- SO YOU'RE SAYING THE CHARGE DIDN'T EXPOSE THE P/L? YES, IT DID. THE 33.6 FLOWED THROUGH THE P/L.

I THINK I WILL FOLLOW UP AFTER THE CALL ON THAT. IF YOU COULD, FILL IN FOR ME IN TERMS OF THE BACKLOG, WHAT THE INCREMENTAL BACK LOG WAS FROM THE SCHULER ACQUISITION. THE ACTUAL PURCHASE BACK LOG AT DATE OF THE MERGER WAS 1,704 HOMES, THAT WAS THE SCHULER BACKLOG ON THE DATE OF FEBRUARY 21st ADDED INTO OUR BACK LOG FOR THE QUARTER.

GOTCHA. OKAY. THANK YOU VERY MUCH.

YOUR NEXT QUESTION COMES FROM THE LINE OF CARL DORF OF DORF ASSET MANAGEMENT.

GOOD MORNING. ONE QUICK QUESTION ON CALIFORNIA. COULD YOU GIVE ME A BREAKDOWN AS TO HOW MUCH OF YOUR BUILDING IS IN THE NORTHERN PART OF THE STATE AND THE SOUTHERN PART OF THE STATE, AND YOU INDICATED THAT IN THE BAY AREA IF PROFIT MARGINS ARE IMPROVING, AND I UNDERSTAND HOUSING PRICES HAVE BEEN DECLINING IN THAT AREA. YOU CAN -- CAN YOU RECONCILE THOSE TWO FACTORS FOR ME? BELIEVE IT NOT, OUR ASSETS BETWEEN NORTHERN AND SOUTHERN CALIFORNIA ARE EQUALLY SPLIT BOTH IN TERMS OF UNITS AND PRETTY CLOSE ON THE PRE-TAX INCOME SIDE. BOTTOM LINE IS IN THE BAY AREA, IN THE PREVIOUS SIX MONTHS ESPECIALLY IN THE FOURTH CALENDAR QUARTER OF '01 AND THE FIRST CALENDAR QUARTER OF '02, THERE ARE INCENTIVES BEING OFFERED TO DRIVE HOME SALES IN THAT AREA, AND THOSE INCENTIVES HAVE BACKED OFF SIGNIFICANTLY IN THE LAST SIX MONTHS. AS A RESULT, THE MARGINS HAVE IMPROVED.

OKAY. THANK YOU VERY MUCH.

YOUR NEXT QUESTION COMES FROM THE LINE OF JAMIE PEREZ OF MORGANS WATERFALL.

GOOD DAY. HOW ARE YOU DOING? VERY GOOD.

COULD YOU TELL ME, YOU SAY COMMUNITY ORDER FORCE THIS QUARTER AND YOUR EXPECTATIONS FOR THE FUTURE?

OUR SAME STORE ORDERS, EXCLUDING ANYTHING FROM OUR ACQUISITIONS WAS AN INCREASE OF 3%. EXPECTATION GOING FORWARD IS THAT OUR SALES WILL CONTINUE TO INCREASE.

EXCLUDING ACQUISITIONS, RIGHT 3%?

THAT'S CORRECT.

YOUR NEXT QUESTION COMES FROM THE LINE OF KATHRYN WALSH OF CAPITAL GROWTH MANAGEMENT.

GOOD MORNING. GREAT QUARTER. I JUST WANT TO ASK YOU, COULD YOU JUST EXPOUND REGARDING THE CAMP OUT IN CALIFORNIA, AND MOST OF MY QUESTIONS HAVE BEEN ANSWERED, BUT AS WELL, WHAT WAS YOUR CANCELLATION RATE? THANK YOU. Stacey Dwyer, DO YOU -- OUR CANCELLATION RATE, KATHRYN, ON A HISTORICAL BASIS, AS WE TALKED ABOUT BEFORE, HAS RUN 17 TO 19%, AND POST-9/11, THE FIRST THREE, FOUR MONTHS, IT GOT UP TO THE LOW 20s, AND I THINK STACEY HAS THE ACTUAL NUMBER.

WE HAVE BEEN VERY PLEASED WHAT WE SAW FOR THE CANCELLATION RATE. WE'RE BACK DOWN TO THE 20, AND WE'RE IN THE BOTTOM OF OUR 17 TO 19% HISTORICAL RANGE.

THAT'S GREAT. IN TERMS OF THE CAMP-OUTS, ONE IN PARTICULAR IS IN VENTURA COUNTY, WHERE IT'S TAKEN ALMOST THREE YEARS TO BRING THIS ONE PIECE OF PROPERTY, ABOUT 150 LOTS TO THE ENTITLEMENT FINALIZATION, AND BASICALLY, WE'VE HAD PEOPLE CAMPING OUT IN ANTICIPATION OF TRYING TO BUY THOSE. THEY'VE BEEN WAITING FOR THREE YEARS, AND ALL OF A SUDDEN, WE'RE ABLE TO OPEN OUR MODELS, THAT'S HAPPENING IN VARIOUS PARTS OF THE COUNTRY AND VARIOUS PARTS OF THE STATES, INCLUDING DOWN IN SAN DIEGO, AS WELL AS IN SACRAMENTO.

THANK YOU VERY MUCH.

YOUR NEXT QUESTION COMES FROM THE LINE OF MIKE KENDER WITH SALOMON SMITH BARNEY, MOST OF MY QUESTIONS HAVE BEEN ANSWERED. A COUPLE CLEANUPS, ONE WAS WHAT WAS YOUR OUTSTANDING REVOLVER BALANCE. 480 MILLION. WE SUBSEQUENTLY, AS YOU KNOW, DUE TO HIGH-YIELD DEAL BROUGHT IT DOWN TO 250 AFTER THE END OF THE QUARTER.

OKAY, AND THE OTHER QUESTION WAS YOU GAVE THE MIX BETWEEN OWN AND OPTION ON YOUR LOT COUNT. WHAT WAS THE TOTAL LOT COUNT AT QUARTER END?

CLOSE TO 137,000 LOTS.

GREAT.

AT THIS TIME. THERE ARE NO FURTHER QUESTIONS. ALL RIGHT. THANK YOU VERY MUCH.