霍頓房屋 (DHI) 2010 Q4 法說會逐字稿

Good morning, and welcome to the D.R.

Horton America's Builder, the largest builder in the United States, 2010 fiscal year-end earnings release conference call.

At this time all participants are in a listen only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Donald J.

Tomnitz, President and Chief Executive Officer for D.R.

Horton.

Thank you, Mr.

Tomnitz, you may begin.

Thank you, and good morning.

Joining me this morning are Bill Wheat, Executive Vice President and CFO, and Stacey Dwyer, Executive Vice President and Treasurer.

Before we get started, Stacey?

Some comments made on this call may constitute forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995.

Although D.R.

Horton believes any such statements are based on reasonable assumptions, there's no assurance that actual outcomes will not be materially different.

All forward-looking statements are based upon information available to D.R.

Horton on the date of this conference call, and D.R.

Horton does not undertake any obligation to publicly update or revise any forward-looking statement.

Additional information about issues that could lead to material changes in performance is contained in D.R.

Horton's current report on Form 8-K dated February 8, 2010, which updated our annual report on Form 10-K, and our most recent quarterly report on Form 10-Q, all of which are filed with the Securities and Exchange Commission.

Don?

Fiscal 2010 was a year of the tax credit.

This caused volatile sales -- this caused volatile sales and closings, but the year was consistent with our expectations and preparations.

While the federal tax credit was in place, we experienced strong sales demand through the April 30 sales contract deadline, especially from first time home buyers.

Ore closings were strong through the June 30 closing deadline for the tax credit.

However after the tax credit expired, sales demand dropped sharply in May.

From June through August, our sales trend showed sequential improvement, and then we began experiencing a normal, seasonal slowdown in September and October.

Overall, housing demand is weak.

Even with significant fluctuations in the level of demand for our new homes in fiscal 2010, our approach was very consistent, manage our homes and inventory to current demand, generate cash, reduce debt, position ourselves for profitability, and maintain a strong balance sheet to be positioned to take advantage of opportunities.

As we look to fiscal 2011, we continue to be realistic in our expectations, and will adjust our business to compete in the current market conditions.

We expect another very challenging year for the homebuilding industry, as fundamental drivers of demand, the overall economy, job growth, and consumer confidence are still very weak.

In addition, we do not expect any stimulus in fiscal 2011, similar to the federal tax credits that were in effect last year.

All of these factors make it likely that our sales and closing volumes will be below our volumes in fiscal 2010.

However, we plan to continue to gain market share by opening new communities, and adjusting our price points and product offerings to the demand we see in each of our individual markets.

I want to congratulate each member of the D.R.

Horton team for turning in a strong performance in fiscal 2010, despite continued difficult industry conditions.

We appreciate very much your efforts.

Stacey?

Our net loss for the quarter was $8.9 million or $0.03 per diluted share, compared to a net loss of $234.9 million or $0.74 per diluted share in the prior year quarter.

Home building pre-tax loss was $6.5 million, which included $30.8 million of inventory impairment and lot option charges.

Financial services pre-tax income was $4.8 million, which included $2.1 million of recourse expense.

Our fourth quarter income tax provision was $7.2 million, due primarily to an increase in our tax reserves.

Bill?

Our fourth quarter home sales revenue decreased 9% to $921 million on 4,281 homes closed, from $1 billion on 4,810 homes closed in the year ago quarter.

Our average closing price for the quarter was up 2% from the prior year, and up 6% sequentially to $215,200.

The sequential increase was primarily due to a higher percentage of our closings coming from the West region in the fourth quarter versus the third quarter.

Don?

Net sales orders for the fourth quarter were down 21% from last year to 3,979 homes.

The net sales orders in the prior year quarter included demand from the first time home buyer tax credit that was in effect last year.

Based on current sales demand, and the fact that the tax credits were supporting sales demand last year, we expect sales in the next two quarters to be lower than last year.

While we remain focused on opening new communities and gaining market share, for us to see significant sustainable sales growth, we need to see improvements in the overall economy, the jobs landscape, and consumer confidence.

In the September quarter, our average sales price on net sales orders was essentially flat year-over-year, at $205,500.

Our cancellation rate was 31%.

Our active selling communities were up 6% sequentially, 49% of our net sales came from communities opened in fiscal year 2009 or later.

Our sales backlog decreased 27% from the prior year to 4,128 homes or $850.8 million.

Stacey?

Our gross profit margin on home sales revenue in the fourth quarter was 17%, up 450 basis points from our home sales margin in the year ago period.

A contributing factor to our margin improvement from last year was that 39% of fourth quarter closings were from new deals that were put under contract in fiscal 2009 or later.

Margins on closings in our new projects are approximately 200 to 300 basis points higher, than on the remainder of our closings.

Our margin decreased 20 basis points sequentially from the third to the fourth quarter, reflecting the weaker housing market we had experienced during the second half of this year.

Although our gross margins have been in the 17% to 18% range each quarter this fiscal year, we expect to experience gross margin pressure over the next few quarters, as we continually adjust to the prevailing market in each of our communities.

Bill?

In our fourth quarter impairment analysis, we reviewed all projects in the Company, and determined that projects with a pre-impairment carrying value of $63.1 million were impaired, which resulted in $29.1 million of impairment charges, the majority of which were in Texas, Florida, and Illinois.

We refer to our projects which have indicators of potential impairment, but were not impaired, as our watch list which represents those projects deemed to be at the highest risk for future impairments.

Our watch list is currently $346.7 million, similar to the amount at June 30, 2010, with the largest concentrations in California, Illinois, and Arizona.

Our inventory impairment process in future quarters will incorporate any changes in market conditions, and any adjustments we make in our business.

Stacey?

Our consistent focus on controlling SG&A has been a key to our return to profitability.

We have leveraged our SG&A structure to focus on profitable opportunities in our existing markets, with our current division operations.

For fiscal 2010, we closed 25% more homes, on essentially flat SG&A dollars compared to fiscal 2009.

Homebuilding SG&A expense for the quarter, which includes all corporate overhead, was $121.8 million or 13.2% of homebuilding revenues, compared to 13.3% in the year ago quarter.

Fourth quarter homebuilding SG&A expense was lower than recent quarters, due in part to the impact of a $7.9 million reduction in our executive compensation accruals.

We will continue to actively manage our SG&A levels, relative to our expected number of home closings.

Bill?

As we are required to directly expense a portion of our interest incurred, while our homebuilding debt level exceeds our active inventory, we recorded $17.1 million in homebuilding interest expense during the quarter.

This was approximately 47% of the $36.3 million of homebuilding interest we incurred.

Our fourth quarter homebuilding interest incurred decreased 31% compared to the prior year, and our homebuilding interest incurred for the entire fiscal year decreased 16%, as a result of the debt reductions we achieved this year.

Stacey?

Financial Services pre-tax income for the quarter was $4.8 million, compared to a loss of $2.9 million in the year ago quarter, 83% of our Mortgage Company's business was captured during the quarter.

Our Company-wide capture rate was approximately 60%, and our average FICO score was 719, and our average combined loan to value was 90%.

Our product mix in the quarter was essentially 100% agency eligible, with government loans accounting for 63% of our volume.

For fiscal 2007 through fiscal 2010, we have recognized recourse expense totaling $94.8 million.

Our fiscal 2010 recourse expense was $13.7 million, which is down from $33.2 million in fiscal 2009.

The majority of the recourse expense in 2007 and early 2008, related to early payment default provisions.

Since then, the more significant portion of the recourse expense, relates to misrepresentations by the borrower in the loan origination process.

Cumulatively, through September 30, 2010, we have settled approximately 1,500 mortgage claims, and we are currently evaluating less than 300 additional claims.

While mortgage claim activity can be volatile from month to month, mortgage claims in the second half of fiscal 2010 declined approximately 23%, compared to the first half of the year.

Each quarter, we analyze recent trends and claim activity to evaluate reserves for potential future claim exposure.

Our reserve balances currently total $39 million, with $10.8 million reserved for owned mortgages and foreclosed real estate, and $28.2 million for pending and projected claims.

Don?

Our total inventory decreased by approximately $87 million, excluding non-cash impairment charges during the quarter.

We reduced our homes in inventory by $129 million, and increased our investment in residential land and lots, and land held for development by $42 million.

Our homes in inventory at the end of September totaled 9,500 homes, down 1,300 homes from June.

1,200 of our homes were models, 5,200 were speculative homes and 3,200 of these specs were completed.

We continue to manage our total homes in inventory, relative to our expectations of sales demand, and we offer spec homes primarily to accommodate our first time home buyers and relocation home buyers.

Bill?

Our land and lot purchases remain controlled, and we continue to evaluate our land development plans based on current sales trends.

We have been actively contracting for finished lots to increase our active selling communities, and increase our gross margins.

In our forth fiscal quarter, we invested approximately $188 million, primarily in finished lots.

Our spending on finished lots will remain largely dependent on our sales pace, while our spending on land and development costs will continue to be at relatively low levels.

Don?

Our supply of owned land and lots at September 30, 2010, was approximately 90,000 lots, of which approximately 23,000 are finished.

We control an additional 30,000 lots through option contracts, up 9% from June 30, with a net earnest money deposit balance for these lots of only $13.3 million.

We are focused on managing our supply of owned, finished lots in line with our sales demand, in a low risk capital efficient manner.

Stacey?

Cash flow from operations for the September quarter totaled $122.3 million, generated by the decrease in homes in inventory, and mortgage loans held for sale, offset by our spending on finished lots and development and a decrease in our accounts payable.

Our fiscal year 2010 cash flow from operations totaled $709.4 million.

We ended the fiscal year with $1.6 billion of homebuilding cash and marketable securities.

The balance of our public notes outstanding at September 30, 2010 was $2.1 billion, and our note maturities in fiscal 2011 and 2012 are $189 million and $146.6 million, respectively.

We retired over $1 billion of debt in fiscal 2010, and we have $483.8 million remaining on our debt repurchase authorization at September 30, 2010.

Bill?

At September 30, our homebuilding leverage ratio net of cash and marketable securities was 16.1%, a 16.4 percentage point improvement from a year ago.

Gross homebuilding leverage at September 30 was 44.3%, an 11.9 percentage point improvement from a year ago.

These leverage improvements compared to the prior year, are due primarily to our cash generation and significant debt reductions.

Don?

In summary, our financial performance this fiscal year demonstrates the progress DHI has made toward achieving profitability, balance sheet strength, and market share gains in this challenging and uncertain housing market.

Some of our most important accomplishments this year include, pre-tax income totaled $99.5 million; home sales gross margins increased 420 basis points over the prior year, as we improved the cost and design of our products, and opened new communities on recently acquired lots at higher margins; fully loaded homebuilding SG&A, which includes all of corporate overhead as a percentage of revenues was 12.1%, essentially flat in dollars with fiscal 2009, on a 25% increase in homes closed; cash flow from operations of $709.4 million, bringing our total over the last 17 consecutive quarters to $5.9 billion; over $1 billion in homebuilding debt repurchases and redemptions this fiscal year contributing to our net homebuilding leverage ratio of 16.1%.

These are -- there are still challenges in the homebuilding industry, rising foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards, and weak consumer confidence.

However, new home inventory remains low.

Interest rates are favorable, and housing affordability is near record highs.

We at Horton, will continue to focus on providing affordable homes, controlling our cost, contracting for new communities with attractively priced, finished lots, and maintaining our strong balance sheet.

Again, we want to thank all of our DHI team members who continue to outsell and outperform everyone in the industry.

Keep up the great work.

This concludes our prepared remarks.

Now we'll host any questions.

Thank you.

(Operator Instructions)

Our first question comes from Michael Rehaut with JPMorgan.

Please state your question.

Thanks.

Good morning, everyone.

Good morning, Michael.

The first question I just had was on community growth, if you could give us a sense of where it was year-over-year for the quarter?

And as you look into fiscal 2011, we appreciate the comments with regards to expectation for sales and closings to be down, and, obviously, you're facing a tough first half comp to say the least.

But how do you look at community growth going into next year, as obviously, offsetting some of that comp, and also, maybe limiting incremental downside on gross margins to the extent that you still have a positive mix shift into next year, as well?

I'll start and I'm sure Don will jump in in a moment.

Our community count year-over-year, in terms of active selling communities, was up 17%.

As we look forward into next year, we are continuing to try to fit new communities under option contracts, primarily rolling options on finished lots.

And we would certainly anticipate continuing to increase our active selling communities.

That will be offset by some of our current communities rolling off, and our pace of increase in the communities will be dependent on the sales demand that we see.

And, we think most all of our growth next year, Mike, will come from penetrating our existing markets deeper, and taking market share from the other builders who are less I think proactive in the markets, and more under capitalized than we.

We continue on each and every one of our markets to work with the banks, and work with the developers to option lots which are already finished, which we can put into construction immediately.

And those lots are obviously at more favorable prices than many of the lots we've had over the course of 2005 to 2008.

So, I appreciate that.

So, just to follow-up, just to drill down a little bit, so are you willing to give us a sense of what you think community count might grow next year?

Is it -- do you think it can still hit this double digit mark?

And, secondly, the gross margin impact or benefit, does that kind of offset, to the extent that you can increase even your percent of closings from new communities?

Or, do you think that positive mix shift has largely occurred, given your near 40% right now?

Well, I think, clearly, that our community count will grow just as it did, and our goal, clearly, is to hit double digit community growth.

Whether we do that or not is going to be really dependent upon what deals become available in each of our markets.

One of the things that we've realized is, in certain of our markets, we saw no opportunities or very few opportunities a year ago.

And now all of a sudden, we're beginning to see more and more communities.

And, simply, that's a reflection of the banks and the developers dealing with the current market conditions, and being honest with themselves about what the real market price of those lots are.

As far as the gross margin, I believe that our gross margins have some potential to come under pressure come the spring, irrespective of the fact that we continue to bring on new communities with higher gross margins, simply because we're not, right now, projecting a huge spring bump.

It's uncertain as to what's going to happen in the spring, and certainly other builders have brought on what we think are additional specs, late in the market post the tax credit.

And we believe that to the extent that there's not a significant spring bump, there could be some gross margin deterioration come spring.

And, clearly part of our strategy in continuing to add new communities at today's prices is to help mitigate that margin pressure.

We still continue to see higher margins in the range of 200 to 300 basis points on our new communities.

The communities that we've contracted since 2009 are now almost half of our business.

So, that's becoming really a core part of our business, and, so, we'll continue to do that to help offset the margin pressure that we're seeing in the market.

But on the whole, we will not be surprised to see some pressure on margins, in a downward fashion in the coming quarters.

And, really, in conclusion on that, I'd like to say is that to the extent that Horton has been proactive earlier than any other builder, in terms of securing these option contracts, we've proven beyond any reasonable doubt amongst the sellers, the banks as well as the lot owners, that one, we are there, and two, we are performing, and three, we are putting specs on their lots, and working their way through their lots at a faster pace.

So, I believe, as I travel through all of these markets as DR does, we are definitely the pre-eminent desired buyer of lots in each and every market.

Great.

Thanks guys.

Thanks.

Our next question comes from Megan McGrath with Barclays Capital.

Please state your question.

Good morning, thanks.

Just wanted to follow-up on that last conversation a little bit more, in terms of your expectations for the spring.

Clearly not a lot of visibility yet, but is there a desire to exit these old communities faster, and that's where you think some of this pricing pressure will come from?

Or generally, do you just think across-the-board, you're going to have to make up for lower volume with across-the-board price cuts even in some of these new communities?

By the way, great job on CNBC this morning.

I thought you did a great presentation.

Would we like to exit our older communities faster?

Yes, we've been focusing on that for quite some time.

And, obviously, the basis in those older communities doesn't afford us the opportunity to exit those clearly as possible.

But, clearly, we're focusing on adding the new communities.

And, as Stacey said, we're 200 to 300 basis points higher on our gross margins on our newer communities.

And, to the extent that we can continue to add those, yes, I think it will offset what we anticipate to be some margin compression come the spring, unless there's a stronger spring market than what we're anticipating right now.

And with the job growth where it is, consumer confidence where it is, I just don't see a lot of hopes for a great spring market.

Okay, a little depressing, but stepping back a little bit, broader for 2011, can you maybe just give us an idea of any sort of corporate goals that you're willing to share, whether profitability, or what you're telling your sales folks, in terms of what they should focus on for the next fiscal year?

Yes, as I tell our salespeople, as I travel around the country, if they're warm, and they have a pulse, write them, and then we'll worry about qualifying them.

But I think that we need to clearly take the buyers out of the market.

We have the best pricing in the industry, the most speculative inventory that's available for immediate move-in in the industry.

So, our focus on our salespeople is, you write them, and then we'll figure out whether or not we can get them qualified.

But most importantly, what this Company has always focused on, Megan, and we continue to focus on every day that we get up, and that is how do we consistently turn a profit in this Company?

So the sales, as Horton says, nothing happens until we sell something, but the reality of life is, we have to sell these houses at a profit.

And our focus is clearly, how do we consistently be profitable in this Corporation.

Great.

Thanks very much.

Our next question comes from Josh Levin with Citi.

Please state your question.

Hello, Good morning.

Good morning.

Given your -- what seems to be a fairly weak outlook for 2011, are you exploring more significant SG&A cuts in the quarters ahead?

I'm not talking about just trimming fat, but really trying to cut bone again?

Well, let's get back to the bleak outlook.

I think what we're telling you is what we see out there based upon the current economic conditions, but don't get confused.

We have been, and we currently are the best positioned builder from an SG&A perspective, a leverage perspective, shareholders equity perspective, to continue to deal better with the existing market, whatever it may be, relative to our competition.

As far as SG&A cuts, yes.

We have already identified with our regional Presidents, additional SG&A cuts to the extent that the sales do not materialize in accordance with our five-year plan for fiscal year 2011.

So, yes, I think those SG&A cuts will be more difficult than what they've been in the past, but we definitely have identified additional cuts that need to be made, if the sales do not materialize.

Okay.

And, you're talking about sales being kind of flattish, not seeing a bump.

You're talking about margin pressure, so margins compressing.

But your impairment watch list didn't really go up.

How do we reconcile all those facts?

Well, it really comes down to -- what we're really dealing with is our current margins are still above 17%.

And so, we haven't seen a significant reduction in our margins yet.

We do expect some pressure, and so we certainly did add some projects to the list this quarter.

But at the same time, we did impair a number of projects this quarter, as well.

So on a net basis, the list, it did not increase this quarter.

But that's something we will continue to evaluate each quarter as we move into fiscal 2011.

And, by the way, Josh, as an important point, we're sitting with a 17% gross margin.

Most of our competitors would be very happy to be facing what may be a bleak outlook in the spring, with a 17% gross margin versus what they have.

Thank you very much.

Yes.

Our next question comes from David Goldberg with UBS.

Please state your question.

Thanks.

Good morning, everybody.

Good morning, David.

The first question I have is, Don, I think you gave some great detail on some of the issues that are facing the demand pool.

But I'm wondering if you could talk about -- I don't want to say rank them, but what I'm trying to get to -- is the problem in the market today there's just a lot of buyers that might want to buy a house, who can't qualify, either they don't have a down payment, or they don't have a FICO score?

So, how would you weigh the ability to qualify for a loan, even with 4.25%, 30 year fixed rate mortgages, and only 3.5% down payments, relative to something like confidence, in terms of what's inhibiting demand today?

I would not say our biggest problem is not qualifying our buyers.

The biggest problem right now, is consumer confidence and the number of unemployed people out there.

We always say, it's hard to sell a home to an unemployed person.

But the real key is that the traffic count in our subdivisions is down, and I don't think there's a lot of pricing adjustment that we can do.

It's just a function of a lack of traffic.

So, until there's some consumer confidence, until we start to grow jobs, I think we're going to continue to be faced with rather flat demand, just simply because buyers don't feel confident about the future.

And they aren't going out there looking for a house in the numbers that they were certainly when the tax credits were there.

But, there is a big enough pool of potential buyers, I mean there is people who can qualify who could, if they wanted to go buy a home?

I think there's a huge pool of buyers out there.

But again, that pool is less than what it was a year ago with unemployment where it is, and the lack of job growth.

But again, those people don't have the confidence that a purchase today is going to be rewarding.

Although, I will tell you, that as I have kept -- I keep telling people, and I have been an example of this myself -- I don't think there's ever been a better time in the history -- my history in the homebuilding industry, with affordability and pricing where it is today, to buy a home.

And if you think that we're going to have inflation in this country, which I don't know how we cannot have with all of the money we're printing, hard assets like a home are going to be the very best investment that you can make.

Great.

That was very helpful.

And then just for a follow-up, Stacey, the comment that you made on claims, I'm wondering if we could focus not on the mortgage put back side, but just on the warranty side.

Is it correct to say you haven't really seen a pick up in claims on a warranty side that maybe some of your peers have talked about this quarter or over the last couple quarters?

That would be a fair statement.

We have not seen anything incredibly unusual in our warranty claims.

We'll have full disclosure around our warranty reserves in our 10-K, but I think you'll see kind of our typical roll forward of our warranty claims.

Just overall, we do have a litigation reserve, and have for years.

The gross estimated liability, in terms of our actuarially determined litigation reserve is $571.3 million.

Offset against that, we have an estimated insurance receivable of $251.5 million, so our net reserve is $319.8 million.

The year-over-year change in that net reserve, is it increased about $20 million, primarily just due to adding our estimates for the closings that occurred this year.

And then offset by anything that rolled off of the tail, or any claims that were settled during the year.

That's something we evaluate on a quarter-to-quarter basis, and adjust as we need to.

But we haven't seen any major changes in activity.

We've been very proactive in that, in the history of the Company.

And, again, I don't think we get credit for the conservative nature of our balance sheet.

But we have been very conservative in all of our accruals, so I think we're well prepared for whatever the warranty claims are on a go-forward basis.

Got it.

Thank you very much, everybody.

Our next question comes from Jade Rahmani with KBW.

Please state your question.

Yes, hello.

Thanks for taking the question.

I just wanted to ask on mortgage repurchase, can you provide any insight on how you're looking at the risk of future repurchase requests?

It sounds like you view that risk as fairly low, especially given your recent provision experience.

Why do you think you haven't seen more of an increase in repurchase requests, given what the banks are seeing?

Is it the nature of the new home product, or because the mortgages you originated were all purchase loans, that didn't include refinance activity, or is it something else?

There's probably several reasons.

I think there actually has been a lower experience on new home mortgage originations than there have been on existing homes.

Part of it is because there's less refinance activity.

So, we haven't had people taking a lot of equity out, based on large appreciation in home prices in certain markets, where the home prices have adjusted back down as much.

Beyond that, our provisions are based on a complete analysis of the loans that we have originated, the types of loans that we've originated, the put back experience we've had on each type of loan.

And what I was talking about in the conference call script, with a decrease in mortgages put back to us of 23% in the second half of the year, versus the first half of the year, that's indicating that we're seeing fewer requests, even at a time when this is a headline.

And one thing I would point out, is we've been recording recourse expense for four years.

This isn't a new issue.

I know it's kind of new in terms of the headline attention it's grabbed, but we've been proactively dealing with it through our mortgage company.

Okay, great.

Thanks very much.

Our next question comes from Joshua Pollard with Goldman Sachs.

Hi, good morning.

How are you guys?

We're doing great.

Yourself?

Not too bad.

Don, I love your enthusiasm, relative to your competitors.

Thank you.

(Laughter).

It's always priceless.

My first question is a pretty simple one.

Do you guys expect to be profitable in 2011?

Yes, we do.

And I will tell you that it's going to be a greater challenge, than it was in 2010.

Simply because, as we mentioned to you, our sales and closing volumes will be -- we anticipate to be less, unless we have some significant spring sales bump, that we are having a hard time seeing today.

So, yes, that's our goal.

But again, it's going to be a larger challenge than it was last year in 2010.

And, if I understand everything that you're saying right, it will be fewer deliveries, lighter gross margins.

You guys are looking to hold the line, at least from a percentage basis on SG&A.

Is there anywhere else that we should be expecting you guys to generate profits?

Are you guys looking to do anything different in your business?

You've had a number of your competitors get into ancillary pieces of both the residential and commercial market, I'm wondering if any of those things are interesting to you at this stage?

Well, frankly, we know one thing.

We're a home builder, and what we're focusing on is the homebuilding operation.

And, to the extent that financial services supplements that, the financial service side of the business.

I don't see any significant opportunities out there that are going to enhance our performance, other than continuing to execute on building, selling, closing homes, and making money, as I call it BSCM.

That's our focus, and, really, largely, our sole focus at this point.

And, I think that our revenues and our closings, we do expect them to be down some, based upon the tax credits not being with us.

But I also believe that, on the SG&A side, we're going to continue to look for opportunities to improve our SG&A.

That's going to be more challenging, but this Company has always come to the forefront, in terms of dealing with whatever the market conditions are, and that's where we'll be.

And one other contributing factor, Josh, will be on our interest expense.

We have continued to reduce our debt dramatically, reduced it by a $1 billion this year.

So, our interest incurred has been coming down sharply.

That will continue to flow through, and we'll see continued reductions in our direct interest expense.

We see less interest capitalized in our inventory today than we did a year ago, given our reduction in debt.

So that is some offset, some mitigating factor to the margin pressure we expect to see in the marketplace.

So both of those factors on the interest will contribute to some incremental improvement, and hopefully it helps to offset the market conditions we expect to see.

And, I don't mean to be redundant, Josh, but, once again, I think that a lot of companies would love to be in our position, of having a 17% gross margin to deal with the future.

As you made that comment about your gross margin, could you just talk very quickly about the difference between your margins on spec versus dirt sales?

I mean we're hearing a lot of different numbers across the industry.

I would love to hear where you guys stand now, and where you think it could be, if specs continue to make up a large portion of your sales?

Thanks, guys.

Well, our margins on our specs, are typically lower than our margins on our build jobs.

But yet, at the same time, we know two things.

One, by having specs, it satisfies the buyer who needs to be a relocation buyer, or a first time home buyer who can all of a sudden qualify, because they've gotten their credit straightened out, or they are ready to move out of their apartment, or out of their parents home.

The other thing we know about specs though, and our focus in the Company is, that to the extent that a spec is 90 days older, or it's 90 days past completion, we need to move that spec as quickly as possible, because the profits on those specs have a tendency to decline the older they become.

It's really a matter of focusing on managing them carefully.

And it's something we've been doing for a long time, and that's part of our business.

And while there are lower margins on the spec versus build jobs, I think you can look at our overall margin, and see that we're managing it reasonably well.

There's always room for improvement, but that's something we're always focused on.

And, to be specific, as we've always said, specs are a part of our business, and it's a part of our business model.

And, that's why we've been so effective at it over the years.

Thank you.

Our next question comes from Ken Zener with KeyBanc.

Please state your question.

Good morning.

Can you hear me?

Yes, we can.

Good.

So, good morning.

Just want to get a little more granular.

Obviously, you guys have been aggressive on the debt pay down, to lower your interest expense.

If you were to look at simply the homebuilding operation, do you expect that business to be profitable, realizing there's a couple levers that could affect the EPS relative to the interest expense and impairments?

Absolutely we expect the homebuilding business to be profitable, and that's our focus.

That's what our business plans call for.

And, then, as we move through the fiscal year quarter by quarter, we'll see how successful we are at executing what our business plan is.

But, yes, we get up every day, shower and shave, and put our makeup on, and our goal is to be profitable in the homebuilding side of our business.

Okay.

And, then, I guess related to the differential of new communities purchased post in 2009 or later, that 200 to 300 basis points seems to be lower than what we might hear from other builders.

Could you comment on is that a function of where you initially underwrote it at a tighter range?

Did it come in, and I guess kind of related to the first question of profitability, do you think your DTA could come back next year?

Thank you.

Okay.

On the new communities, we've been consistently seeing 200 to 300 basis points for two years.

We started doing our new communities almost two years ago, and have a significant history of closings on those communities, and it's become a significant portion of our business.

So, we're confident that that's a good level, certainly, some do better than that.

Some maybe a little lower than that, but that's our average.

And, so, I'm confident in our history, and we'll see over time whether other builder's new communities contribute at a similar level or better.

And, I think the point is we do have a track record on our older communities.

Our newer communities I should say.

And the other builders are just now beginning to enter into a lot of new deals, or some new deals.

So, I think we certainly have a better track record and our 200 to 300 basis points is a lot more accurate than you're receiving from some.

And the other thing I'd say on our existing communities is, they aren't static either.

We continue to renegotiate the costs, redesign the product, do everything we can to bring the cost down on those, and improve the margins on those.

At the same time, we're layering in the higher margins from the options, and that's all reflected in our 17% to 18% margin that we've been running this year.

So, clearly, if our margins improve by 400 basis points versus last year, that didn't all come from new communities.

Our existing communities improved their margins as well.

So, while the gap may be only 200 to 300, both levels are rising.

You also ask about the DTA, the deferred tax asset.

It's a little over $900 million right now.

The analysis of whether and when that might come on will be solely dependent, largely dependent on our profitability, the ability for us to have sustained substantial profitability, and our expectations for forward profitability.

So, that will be dependent on our ability to execute on our goal, and our plan to be profitable in fiscal 2011.

And, we'll be evaluating that as we move through the year.

We can't say anything definitive about that right now until we show a consistent profitable record.

Thank you.

Our next question comes from Dan Oppenheim with Credit Suisse.

Please state your question.

Thanks very much.

Was wondering if you can just talk about your thoughts on community count?

You said that the community count will be dependent on the market and the sales.

Others trying to bring on new communities to effectively offset the tougher conditions.

Is your thought that there's effectively too much supply out there as it is, and why deal with that?

Can you just talk about your thoughts there?

No, not really, Dan.

I tell you what, it mainly -- it surrounds -- is the willingness of the sellers, whether they be banks or developers, to write their lots down to current market conditions.

And we've had a lot of institutions who have been unwilling to mark their lots to the price that really is the market price.

So, it's more of getting the log jam undone, and many lenders relative to our ability to bring on those new communities.

It's really, already, been a focus for us.

It's up to 49% of our sales this quarter.

And, we continue to focus on it as far as incremental increase.

But, we're clearly just as focused on it, because it's important to our business going forward.

It's a function too, and our Division Presidents, and our regional Presidents, and our land people spend a lot of time with banks.

And, the first time you go in to discuss with a bank a foreclosed asset, they're typically in denial, or they don't have the capital they want to use to write down the loan to get the lots at the market price.

So, it takes a while, sometimes it takes a year, before they are willing to deal with it.

And, at that point in time, as I said earlier, without a doubt, based upon our performance over the last couple of years in these foreclosed communities, we are the pre-eminent buyer in the marketplace today.

Okay.

And, then, secondly, just wondering about talking about the specs, and you've done a great job in the past, in terms of managing the specs and delivering order growth, while preserving margins, your comments in terms of the weaker demand, while still going after buyers who have a pulse, is this effectively you're not going after too much, in terms of demand right now, thinking there's too much worry, in terms of hitting margins here?

What's the thought there?

Actually, we continually adjust our specs, as well as our inventory, relative to the demand that we see on a go-forward basis.

So, clearly, we have been reducing our unit inventory.

And, we've been reducing our specs, because as we said earlier, we expect our sales and closings to be less in 2011 than they were in 2010.

So, clearly, we're adjusting that inventory in accordance with what we think is going to happen.

As Don Horton said, one thing we can do, is we can start them quickly and we can get them built quickly, so, to the extent that the demand exceeds what our current inventory level is, which is based upon what a lower number than perhaps what could be out there next year, we're well prepared to meet the demand, because we can build them quickly.

We feel like our inventory levels are sufficient to meet our expectations right now.

Great.

Thanks very much.

Our next question comes from Jonathan Ellis with Bank of America Merrill Lynch.

Please state your question.

Thank you.

First question, just on what happened this quarter.

And then sort of looking forward, with respect to pricing and use of incentives.

I appreciate the commentary on the fact that mix benefited pricing this quarter.

But I guess, as you think through the gross margin pressures to come, and recognizing that pricing on your orders was fairly stable quarter-over-quarter, is it possible that more of the incentives could be coming below the price line, in the form of closing costs or free options or upgrades, things that would impact margin more than price?

So, basically the question is, could you see a scenario play out, where pricing holds fairly stable over the next few quarters, where margins may come under pressure?

Certainly that's our goal, is to hold pricing stable in all of our communities.

And to the extent that we need to incentivize our homes to be sold at a faster pace, we like to do that below the line, as opposed to above the line.

Okay.

So, -- you think -- as of right now, you're fairly comfortable you should be able to achieve that over the next few quarters?

Yes.

I think that our -- well, let's back up.

There will be two things that impact our average sales price, one would be just absolute pricing pressure, which, as Don said, our first response to that, is going to be offer additional incentives, because we do want to hold on to our base pricing.

The other thing we're continuing to do though, is we are opening new communities, with lower lot costs.

And, that is letting us continue to offer new product at lower prices, than in some of the current communities we have open.

So, you could see some change in our pricing going forward, as a combination of those two factors.

And also, if you look at our stick and brick costs this quarter, we were down 320 bps on stick and brick.

And one of the things that we've done over the last two years consistently, is continue to drive down the stick and brick costs.

I just came out of Southeast Florida, where we had a vendor meeting with our Southeast Florida division.

And we had that in Southwest Florida, we have them in a number of communities.

And I will tell you, we were frank with our vendors, we appreciated them having cooperated with us over the last couple years.

But to the extent that the market is softer on a go-forward basis, we're going to be expecting better pricing, and more concessions from our vendors, because we're all in this together.

We're trying to get to the point where we all can achieve profitability.

But the only way we can do that, is to continue to meet the market.

Okay.

That's helpful, thank you.

And, then the second question, if you could offer up any guidance for what you think the percentage of deliveries are closing next year will be from recently purchased lots?

And then the related question is, I've heard you talk about the 200 to 300 basis point margin spread, for at least the last few quarters.

I guess, given your commentary about some of your competitors perhaps putting more spec inventory into the market, and potential challenges in the spring selling season of next year, I guess, why are you still comfortable or confident that you can maintain that margin spread over legacy -- over your legacy communities?

Why would you not see just as much pricing pressure perhaps, or, if more, in newer communities that may narrow that spread?

Well, one thing we're going to continue to do is continue to add new communities at current market pricing, So, to the extent that the market gets softer, we're going to be negotiating better finished lot prices.

Also, we consistently renegotiate our existing rolling option contracts.

And that's one of the beauties of a rolling option contract, is we don't own the lots, someone else owns them.

And, to the extent our gross margins get compressed, before we do the next take down, we're back renegotiating the lot price downward.

I'm personally approving all of the lot contracts, and all of the renegotiations, so, I can tell you we see a lot of renegotiated contracts through here.

Additionally, I would say to you, that we are going to put pressure on our vendors, and they've supported us throughout the years.

And especially since we're such a significant portion of every market, our vendors are very focused on additional business.

And as we continue to aggregate market share in each one of our divisions, then we are going to be able to get price concessions from them.

Just as an example, I just noticed the other day that we got something out of Las Vegas, where we are the largest builder in Las Vegas with 14.2% of the market share.

I was in Southeast Florida where, a year ago, we had five communities.

We're going to have 20 communities by the end of this calendar year, and 25 communities by mid year, next year.

In Southwest Florida, we had seven two years ago, and, now, we have 34 communities.

So, if anyone has the opportunity to continue to put pricing pressure on the land sellers, and the lot sellers, and the vendors, it's someone who is doing the volume in those markets to the extent that we are.

Just one distinction, the 200 to 300 basis point spread between newer communities and legacy communities is simply the spread in their margins.

Competitive market pressures affect both new communities and legacy communities, so, both of them, if they are under pressure would move in the same direction.

But we would still expect the spread to be better on our newer communities.

And, with option contracts, if we see significant price movement, we still have the opportunity to go back and renegotiate those lot costs.

Okay, thank you.

And, just, the related question was, do you have a guidance or percentage of deliveries, or closings from recently purchased land for 2011?

Well, our recent sales in the most recent quarter were up to 49% of our business.

We expect that to continue to grow.

It's now become a core part of our business, will continue to be a core part of our business.

And, so, we expect that to continue to grow.

Okay, thank you.

(Operator Instructions)

Thank you.

Our next question comes from Nishu Sood with Deutsche Bank.

Please state your question.

Thanks.

I wanted to come back to this somber outlook that is surprising a lot of people, I suppose.

If I look at what you're reporting this quarter, I guess I don't get it.

I don't understand where this incremental somberness comes from, because, if I look at, for example, what you said about demand, after the post-tax credit drop off in April and May, pick up from July through September, and then really normal seasonality from there.

Pricing, it seems, has not been great but has been kind of stable.

Your gross margins, your September quarter was obviously after the post tax credit closings, and it was pretty strong considering, especially with all of the specs that you moved.

So, I mean, what am I missing here?

Does this really just boil down to a comp issue that, last year, you had two tax credits in it from a volume perspective, and this year you won't?

So, what am I missing, in terms of what's happening now, that is driving this increased level of pessimism from you folks?

Maybe you aren't watching as much Fox News as I watch, and maybe I'm watching too much of it.

But to be quite candid with you, I don't see much on the horizon that would give anybody a great degree of comfort on the financial condition of the country.

I see still high unemployment.

I see a lot -- very lackluster job growth, or no job growth.

We see continued high unemployment, and I see corporations sitting with over a $1 trillion dollars in cash.

So perhaps I'm more somber than they, but they obviously are voting with their pocket book, because we're all keeping a lot of cash on our balance sheets until we have some future that's being driven by the government that says, hey, here's what the rules are, and we can go forward, you can go forward and play for the next three to five years, and here's what the rules are.

We don't know what the rules are.

So getting back to the -- and we're by virtue of who we are, and our experience of business a little more adept at dealing with that.

But if you're a consumer out there, and you're working at Boeing or working at Microsoft, or you're working one of those companies, and you see what's going on in the economy, I don't know how you can have any confidence that you are going to have a job tomorrow, because people are still being laid off.

So, our somber outlook is one that, perhaps, I'd call it realistic.

It's no job growth, high unemployment, and a tremendous amount of debt in this country, which is focusing on, are we going to have issues going forward, which I think we will with our debt.

So until those major factors are fixed in the economy, I don't think any business can have any great assurance as to what's going to happen in the future.

Got it.

Got it.

That makes a lot of sense.

So, I guess to frame it in terms of what you're not saying, you are not saying that you saw a dramatic drop off in demand which has driven you to be more pessimistic.

You are not saying that you've seen pricing fall apart.

You're basically saying, that as you look -- in the past to a year which benefited from government stimulus and a lot of uncertainty going forward.

It sounds more like a macro statement as opposed to those other things which you aren't saying.

Absolutely, yes.

This Company is positioned today better than any Company in our industry to deal, whether it's be somber, realistic or optimistic, come the spring selling season.

I'm just dealing with the macro issues.

And the macro issues, I think, have a bigger impact on our industry than any of the other factors are involved.

Okay, thanks a lot.

Our next question comes from Stephen East with Ticonderoga.

Please state your question.

Thanks, DT, thanks for that, because that's exactly what I was driving toward as well, whether you were seeing something in your order trends that made you change your mind.

Are you seeing any shift among buyers?

Are you seeing a shift from entry level toward move-up, anything like that that's going on in the market?

Subsequent to the expiration of the tax credit we have seen our first time home buyers now into the high 40%, instead of in the 50% to 55% range.

So, we have seen a little bit of that.

But we're still seeing strongest demand from the first time home buyer, simply because they don't have some of the hurdles, in terms of selling an existing homes, before they can move into another home.

Okay.

And could you just remind us when you would start seeing your first indications of the spring selling season?

Well, we think that -- clearly Super Bowl Sunday.

But, as Horton and I were talking the other day, it's going to be end of February, most likely into March, before we can really ascertain whether there's been any spring selling season.

Okay, thanks.

Our next question comes from Carl Reichardt from Wells Fargo Securities.

Please state your question.

Hello, guys.

How are you?

Doing great, Mr.

Reichardt.

We haven't heard from you lately.

Well, your -- I think your teammates have something to say to me, but we'll -- (Laughter).

Well, Carl has been a little distracted lately.

And Carl, I must congratulate you on your Giants winning the World Series.

(Laughter).

I have legitimate business questions.

Stacey, last quarter we talked about this quarter being potentially profitable, but a challenge.

And, one of the issues was focused on backlog turnover.

And your backlog turnover was close to 100% this quarter, and actually that way pretty much through the year.

What are you thinking about 2011?

Are we going to continue to see you turn your backlog at close to 100% a quarter, or is that going to slow up?

It's hard to say, but we achieved 100% in a Q4, which is typically our highest backlog conversion.

The other times we exceeded 100% this fiscal year were typically quarters where we had tax credit expirations, either in the quarter or imminent.

So, it's hard to say that we would continue to see that.

We have seen though a continued high percentage of our home closings come from specs, which can be a shorter contract to close process.

And we do continue to have those homes available, so that can keep our conversion rate elevated.

But in terms of giving you a definite answer on what we could achieve going forward, it's difficult to do.

And then Don, going back to your thought process on market share gains, are there some specific regions of the country or metro areas, maybe two or three, where you think the gain potential for you guys is most great?

I know you're going to say it's pretty much everywhere, but I'd like you to focus on two or three, where you think the opportunity is the best.

Well, clearly, I think Florida has been really a great story for us over the course of the last 12 to 18 months.

I also look at Texas, because of the fact that, in Texas, there are a lot of growing option opportunities here more so, than elsewhere.

And clearly Texas is our home, and Texas continues to be a very profitable market for us, and we have some very good operators here.

We also have some very good operators in Florida.

Ironically, I look at our position in Las Vegas, and Las Vegas is really a marginal market.

And, we have a Division President out there in Scott Stone, and has a great team and we continue to take market share in Las Vegas in a really, really sad market.

I think that also that we have opportunities in the Atlanta market, and we have a good operator there.

But those are really where I see some of our best market opportunities in big markets where we can continue to take market share.

Appreciate it.

Thanks guys.

Thanks.

Thank you.

Our next question comes from Jack Micenko with SIG.

Please state your question.

Hello.

Thanks for taking the question, guys.

Most of the questions have been answered.

Just two quick ones.

Can you talk about your subprime process in 2006 and 2007, and how that's really changed for today?

And what kind of sales, the sales mix, in terms of the financing, GSE versus otherwise private label in that time period, and then a follow-up?

Basically, subprime was available.

There were investors who were interested buying subprime product, and so our Mortgage Company originated subprime in 2005 and 2006.

The subprime and Alt A combined essentially replaced the governmental lending in terms of percentages, so the government had been 50% to 60% of our business, prior to the availability of subprime and Alt A.

Alt A and subprime grew, while government shrank.

And then, there are no investors today buying either subprime or Alt A.

Most of the mortgage investors are looking for full documentation with the implicit guarantee of the US government behind it.

And so the government portion of our loans has grown again to where it was 66% this quarter.

When you say government, are you breaking out -- including FHA in that total?

FHA is in there, usually about the mid 40% range, and the balance of that is going to be VA.

Okay, great.

And, then, on the $370 million or so on the watch list, or $350 million, I'm sorry, do you offer a state by state break down of that number?

I believe we gave our top three states, which account for more than 50%, and that is California, Illinois, and Arizona.

And, just as a point, I always like to mention that we're the only builder, I think, who gives you a watch list.

Yes, thank you, appreciate it.

You're welcome.

All right.

Thank you.

Thank you.

Thank you.

Our next question comes from Jay McCanless with Guggenheim.

Please state your question.

Hello, good morning.

Some quick ones.

Good morning, Jay.

Good morning.

ASPs for fiscal 2011, I know it's been a little over the map this year because of mix shift, but the land that you're buying now, what should we expect for ASPs in 2011?

I would expect our ASPs to be flat to slightly up.

Okay.

And then, I agree with your commentary about inflation being the looming problem in front of us, but how soon or what should we expect in terms of it showing up in your stick and brick costs?

I mean, you said it was down 320 bps this year, but how long do you think you'll be able to sustain that, if we do see a sharp pick up in inflation?

I think Don has addressed a lot of that, just in terms of, as long as the top line continues to be soft for us, and we see continued margin pressure, we're going to be back negotiating.

We cannot accept price increases right now.

And so, there's been a lot of talk about increases in commodities.

I think we've had some talk around installation and paint.

But, we have price protection in most of our, in all of those categories, in most of our markets.

And so, we're going to negotiate very aggressively, even in the markets where we don't, just based on our volume.

So we've heard a lot about price increases over the last year.

And in general, we're able to hold the line on our pricing, and we'll continue to do that until we can sell our end product for a greater price.

And, if we think that what happens in the marketplace where we have softer sales and softer closings for the industry on a go-forward basis, I think a lot of these, even if there are inflationary pressures from our vendors on commodities, I think, it's going to be a difficult time for them to push those through, based upon the slowing demand, both on the sales and the closings.

Okay, great.

Thank you.

Thank you.

You're welcome.

Our next question comes from Michael Smith with JMP Securities.

Please state your question.

Good morning, guys.

Most of my questions have been answered, but I definitely had to say, "Go Giants!" before we got off the phone here.

(Laughter).

I wasn't going to let that opportunity pass, no matter how long you made me wait.

No, but real quick, I do have one question, which is I've heard from some other builders, and, Don, you kind of mentioned it a little bit earlier.

But, just if you could give a little more color on it.

This idea that pricing right now for consumers, because it's much more of a confidence question than anything else, and people just don't feel comfortable going out and buying a house, that pricing for homes is fairly inelastic.

And I'm wondering if you can comment on whether or not you agree with that, and how much that impacts your decisions going forward, about pricing and incentives?

And if that offers some measure of margin protection for you guys, knowing that people are going to kind of come out of the woodwork when they're going to come out of the woodwork, and there's not a whole lot on pricing that you can do to affect that, or if you think that's a wrong way to look at it?

Well, I think pricing is inelastic.

We talk to our salespeople, Horton and I do, on a daily basis, and our sales managers.

And it's just not a lot that we can do to continue to sell homes, increase our sales base relative to the traffic that we've got.

Now, we've got a lot of plans for this year, as we did last year to increase our traffic vis-a-vis sales events that we had last year.

And, we've got plans for those in each one of our divisions, and our regions in the country and also on a nationwide basis.

I think the way that we continue to handle those -- the softness, is by virtue of offering incentives, so we can maintain our pricing structure in most all of our communities.

Because the last thing we want to do is enter into a decrease in our prices, basically we prefer to offer that on the incentive side.

All right guys, appreciate it.

Thank you.

Thank you.

Our next question comes from Ken Leon with Standard & Poor's.

Please state your question.

Thank you.

There's such a high concentration in the southeast and south central markets, and can you speak to those markets, first in terms of the first time buyer, and whether, compared to past cycles, what's going to give you more confidence, than just anything more specific, than just saying confidence or jobs employment?

Well, clearly, as I was reading the other day, you talk about the south and the south central and the southeast, one of our strongest markets is Texas.

And, as I was reading the report, I think it's Perry's report or something like that out of Waco, he was talking about 380,000 jobs have been generated over the last decade or something like that, it's all been in Texas.

So, clearly we believe that Texas is a fantastic state.

They have acquired a lot of corporations.

We continue to get corporations moving in from California and other parts of the country.

So, I think Texas will continue to be a very strong market for us, both in terms of relocation, as well as job growth within the state.

And, just staying again, on southeast or south central, you had positive comments, congratulations on building more communities in Florida at a lower cost and higher return.

But foreclosures are substantial, and it's an overhang that's going to be there for a few years.

So, relative to other builders, national builders, do you feel that you can be successful, and still gain share?

Yes, I do.

And one of those reasons is because we are penetrating our markets, and we are tying up the finished lots in most all of those communities.

So, we have more flags than most communities, than other builders.

In terms of the foreclosures, we deal with foreclosures in virtually every market, every day.

We believe we offer a very competitively priced product, a new product, with a warranty on it vis-a-vis the foreclosures.

And, in addition, ours is a seamless process, as opposed to very frustrating project, trying to buy something from the government or from the bank.

So, as a result, I think we can continue to effectively compete with those foreclosures.

And, not only do I think, I know we have to, because they are going to be a problem for the industry probably for the next three to four, five years.

Yes, I agree.

Well, thanks so much.

Yes.

Thanks, Ken.

Thank you.

Ladies and gentlemen, unfortunately, we have run out of time for questions.

I will now turn the conference back over to management for closing remarks.

Thank you, and we appreciate all of you who joined us on our conference call.

I want to be certain that everyone understands that we believe that we had a very successful fiscal year 2010.

And, most importantly, we are prepared to meet whatever the market conditions are in fiscal 2011.

I can't thank all of our salespeople enough, in each one of our communities, because you've done a successful, very successful job out there.

And, to all of our construction people who we continue to build houses faster, more efficiently, and better than ever, I thank you.

Our vendors who've continued to support us over the years, and we need your support on a go-forward basis to meet the market, we thank you, too.

We clearly continue and will plan to continue to outperform everyone else in the industry.

D.R.

Horton is the largest builder in America for the eighth consecutive year.

And, our goal, clearly, is to be the largest builder for the ninth consecutive year, all the while focusing on the most important aspect of our business, and that is profitability.

But, as Don Horton said this many times, it all starts with the people.

And, I frankly believe we have the best people in the industry, and we appreciate your phenomenal job that you've done for us.

Thank you very much.

Thank you.

This concludes today's conference.

All parties may disconnect now.