Lennar Corp (LEN) 2002 Q1 法說會逐字稿

As is always the case with regard to forward-looking statements, Lennar's actual results may differ materially from those that are projected in the forward-looking statements. There are discussions in Lennar's report on form 10K, and quarterly reports on from 10Q, which have been filed with the Securities and Exchange Commission of factors that could cause actual results to differ materially from those projected in the forward-looking statements. The company urges you to look at them.

At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Stuart Miller, President and Chief Executive Officer of Lennar Corporation. Please go ahead, Mr. Miller.

Yes, good morning. Thank you, Michael, and good morning everyone. Welcome to Lennar's first quarter 2002 conference call.

To begin, I'd like to apologize for the late start. We got a little bit delayed trying to wait for additional lines to be connected to the conference call. So I hope we begged your indulgence in that regard.

Here with me, of course, is Bruce Gross, our Chief Financial Officer, who will talk more specifically about our numbers. I'd like to give some introductory remarks, and we'll go from there with questions and answers.

As you can see from our press release -- and we're not going to go through all the numbers -- but we had a very strong result for first quarter 2002. Revenues up 13 percent, earnings up 40 percent and gross margins improving 80 basis points to 23.1 percent.

And, you know, as you'll reflect on the information that we've given in our fourth quarter conference call, and as we look backward, these numbers are very much in line with the guidance that we gave and the expectations that we had for our business as we looked ahead. But I must say parenthetically that I'm actually surprised to see the strength that exists in the homebuilding world, as we

from both the effects of 9-11 and as well from a national economic recession.

As you know, homebuilding has held up very, very well. The industry looks very strong, and I'm frankly not only surprised to see the great results that we're able to report today, but, likewise, the strength that we see in our numbers as we look ahead both to the remainder of this year and to 2003.

Of course, as we look ahead to another record year for 2002, we have said that -- and continue to say, that our second and third quarters will continue to be impacted, as was our first, by the effects of 9-11 and by the national recession. And as incentives on slower sales from those -- from the third and fourth quarters of '01 -- ripple through our numbers for 2002, we will see some of those effects. And we've seen some of that in our SG&A numbers in the first quarter as we see increased insurance costs and some brokerage fees and incentives coming through those numbers in the first quarter. We'll continue to see some of those effects as we go forward in 2002.

But, nonetheless, we continue to look at a very strong 2002, with sales coming back strong, pricing power coming back to the industry, margins looking strong as we look ahead and a very solid program for the homebuilding group in general.

Questions are being asked of the industry -- of all of us in the industry right now as to whether or not we are at the end of a bubble, end of a cycle. Where do we see ourselves and how do we look ahead at the industry prospects? And, you know, I'd just say that this is an incredible time to be a homebuilder and to be part of this industry. With multiples as low as they are, we are looking at 10 years of stability in earnings -- growing earnings, 10 years of growth in revenues. And as we look prospectively, we are looking at fundamentals that drive the industry remaining very healthy and very strong.

We are in a historically low interest rate environment. There are no inflationary pressures seemingly putting interest rates in an upward way. We have strong relative consumer confidence, we have strong employment numbers. It looks like we are looking at a recovering economy with job formation potentially coming back around the corner.

Housing demand driven by all of these factors remains very strong and is likely to remain strong as we look ahead to the next decade. If you look at the things that drive housing demand, fundamental household is strong, immigration continues to be one of the driving factors behind an expanding housing demand.

Move-ups and retirement buyers continue to drive additional segments of the homebuilding industry. And counter-balancing all of this and giving us and giving us strength within our margins is the short supply of land that is keeping the -- the costs or pricing power in housing moving up as demand goes up as well.

As we look ahead, we see a lot of strengths. A question has been raised about interest rates. And as we look at interest rates, there -- there is a potential for some upward movement in interest rates. There's been question as to whether the Fed has finished lowering interest rates, and we think that it has. We think that interest rates might move up over the next year, year and a half. But we think that the movement is likely to be modest. As I said before, inflationary pressures simply aren't there.

We have a recovering economy, but we don't have a blustering economy yet. And I think that the Fed is likely to be judicious in the way that it handles interest rates. And in a moderately increasing interest rate environment, we think that demand remains very strong for the industry. If you look back to the late 90s, we saw interest rates move some 200 basis points, and still demand remained driven by consumer confidence and employment factors that kept demand very strong.

The other question has been asked about discounting in the industry, and of course in the wake of 9-11 and given national recession, some measures had to be taken to spark sales over time. And, of course, we -- we felt the pressure to do the same. As you know, there had been some discounting and some incentives brought

on our products as we came to the close of 2002.

What we are seeing today is that this discounting has come to an end. We have much more -- we are back to the normal levels that we had pre 9-11 in terms of discounting and issuing of incentives. And we're seeing that strong demand is driving increased -- increased purchasing power for the industry as a whole, and we're seeing that creep back into the way that the industry is run.

So where does that leave us and how we define Lennar in this very strong housing industry and housing environment? Let me look for a moment specifically at the company and where we see ourselves as we look ahead to what we expect to be a record 2002 and yet another record 2003.

There are some very strong fundamentals that drive this company and distinguish us. And if you look at our numbers over time, we have been one of the strongest generators of long-term value in the homebuilding group. And what are those distinguishing factors? Because they come to bear on these first quarter numbers and the numbers as we see our business growing forward.

And I'd just like to highlight what we call the Lennar process, which is really defined by five guiding principles. Let me just walk through them, because they are important in what drives our business.

Number one, first and foremost, everyone in this company is focused on bottom line and return on capital. We have every senior manager within the -- within the business focused and bonused on the metrix, whereby they are encouraged to not only improve bottom-line earnings by improving their margins and focusing on their margins on a regular basis, but they are constantly focused also on those improved earnings on a lower asset base.

We are moving much more, and consistently, in the direction of a more manufacturing model for operating this business. We have seen our land supply come down over time, yet we have been able to maintain and grow our margin at the same time, and it is due to this focus on return on capital, where every front line manager is bonused and focused on these metrix.

Our number two principle is that financial strength and stability are the keys to long term success and growth. Financial strength and stability is Lennar's way of saying we focus on balance sheet first and foremost. This is an investment-grade company, and it will be an investment-grade company always.

We might not always be rated as an investment-grade company, but it is the way that we are run. And if you look at the metrics as to how our balance is formed and formatted, and how we run the business to balance the right and left-hand side of the balance sheet, you will see that there is a consistency. We run our business to operate in a 35 to 45 percent debt-to-total-cap range, and this is the guiding principle that keeps us in position, not only to be well fortified when times aren't so good, but to grow opportunistically and strategically in markets that are good, and where opportunities present themselves.

And as you see within our company, we have a tremendous amount of liquidity; it is defined by a revolving line of credit that is drawn to zero. And an abundant amount of cash in the bank, which raises the question, of course, of what do we do with all of that cash and all of that liquidity, and how do we efficiently run the business and maximize shareholder value? And of course, we have highlighted the fact that we have a number of options that we look at as opportunities to better run this business.

We always have the opportunity to buy back stock, and to shrink the company. We have the opportunity to reduce our debt outstanding, an opportunity that we are looking at seriously today. And as well, the opportunity to grow the business by way of acquisitions and strategic combination. These are the things that we are looking at consistently.

We have been predisposed to look at ways to grow the business before we shrink it. And this management team is focused on how we deploy our capital most effectively, without feeling the pressure to put our capital to work in a way that does not maximize shareholder value for the long term.

Our number three guiding principle is that good growth defines a better company. And what that means to us is that as we grow our company, every measure of growth boils back to a return on capital model. Every acquisition, every combination, every opportunity, is measured by its effect on return on capital, which means that it's not just about how much profitability, how much accretion we can generate within an acquisition. It's also about how much accretion and profitability we generate relative to the investment, or amount of capital that is actually put to use.

We have a number of ways where we can grow our business, where we can measure against that return on capital model. We have organic growth that is at work at the time throughout all of our divisions. We have strategic acquisitions, both big and small, which we are evaluating on a regular basis. And then of course, we have our strategic dual marketing strategy, which enables us to grow in markets in which we are already operating with either an everything's-included, or a design-studio approach to the business, growing an ancillary business alongside an already successful model.

Our fourth guiding principle is to achieve consistent positive results. And the way that we do that is we are constantly focused on internal improvement within our company. On a long-term basis, we are focused on reducing or leveraging SG&A, and we'll start to see, and begin to see, that happen more consistently over time.

And as we grow our volume, we are constantly focused on reducing costs, and we think that as we become a larger company, and as we have become a larger company, we have been able to reduce the cost of production, and we'll be able to leverage even further reductions in cost, as we go forward. And of course, we're leveraging sales expense, and as we move forward and grow the business, we'll be able to bring our sales expenses down. The bottom line is that we are as much focused internally, driving bottom line reductions in cost, leveraging SG&A, as an opportunity to grow our bottom line even without growing the top line as dramatically.

And then of course, our fifth guiding principle is the fact that strong corporate culture keeps us growing in the same direction. And of course, as you know, and have learned a little bit about Lennar over the past years, this is a company with a very strong corporate culture.

That culture is used to keep a diverse and growing company on the same page, as we move in directions, and as we grow the business. In order to generate shareholder value, what we do is use that culture to keep everybody consistently focused on return on capital, and the metrics that define a company that is producing consistently good results.

So with that said, let me turn over to Bruce, who will look more specifically at our numbers.

Thank you, Stuart.

There are three areas I'll be discussing. First, I'll provide some color on first quarter financial results. Second, I'll discuss the strength of our balance sheet. And third, I'll provide some guidance in addition to our 2002 quarterly EPS goals that we established on our January conference call.

Starting with results -- and I plan to be brief, since our press release lays out many of the financial details. On our January conference call, I discussed our first quarter EPS goal to be in the 95 cent to $1.00 range. We exceeded the high end of this range with first quarter EPS of $1.03.

This compares to the prior year's EPS of 75 cents. Operating earnings improved in both homebuilding and financial services. Homebuilding operating earnings increased 15 percent, from 115 million to about 133 million. This increase was driven primarily by a 13 percent increase in wholly-owned deliveries.

Deliveries in this quarter increased the most in our Florida and Texas markets, compared to the prior year. Additionally, we began delivering homes from our first quarter acquisitions of Patriot Homes in Baltimore,

in Raleigh, and

in Charlotte and Charleston. All of these acquisitions were immediately accretive. Our Lennar process focuses on using our strong balance sheet to make strategic acquisitions, and immediately focusing on integrating these acquisitions to build a better combined company.

The first day after closing these acquisitions, each of these operations received the benefit of participating in our national purchasing program, receiving our lower cost to capital, and benefiting from Lennar financial services' ancillary businesses. Effective April 1st, all of these operations will be live on the company's computer systems. We are very pleased with the immediate success of all of these acquisitions.

Gross margins as a percentage of home sales during the quarter improved 80 basis points to 23.1 percent in the first quarter, versus 22.3 percent in the same period of the prior year. This increase is a continuation of our focus on operational efficiencies, of dual marketing, national and regional purchasing, and our low land basis on our balance sheet. SG&A, as a percentage of revenue from home sales, increased during the quarter 80 basis points, to 12.1 percent. This increase is primarily due to higher broker commissions, and insurance costs. Broker commissions increased as a result of the post-9/11 decline in new orders. Insurance costs will be approximately $10 million higher in 2002 for the full year, compared to 2001.

Turning to financial services, financial services' operating earnings increased 223 percent in the first quarter. We earned 23.4 million, compared to 7.3 million in the prior year. We noted significant improvements in both our mortgage and title operations. Our mortgage operations generated 18.9 million pre-tax, versus 9.4 million pre-tax in the prior year.

We originated 1.2 billion in loans for the quarter, and we captured 81 percent of Lennar deliveries, compared with 78 percent in the prior year. The combination of Lennar and U.S. Homes mortgage operations under one national program continues to go exceedingly well, and is reflected in these results. Mortgage has benefited from higher refinance activity in 2002 versus the prior year, as approximately 25 percent of our mortgage activity was refinance-related.

Turning to title, our title operations earned 3.8 million compared to a loss in the prior year of 400,000 and again we have been consolidated our title operations under one national program, North American Title, which continues to operate more efficiently.

Title has benefited from the higher refinance activity in 2002 as well versus the prior as about one-third of our title activity was refinance related. Turning to the balance sheet, our focus continues to be on generating strong earnings supported by increasing current cash flow. We have low leverage as our net debt to total capital improved to 37 percent at the end of the first quarter of 2002 compared to 49.2 percent at the end of the first quarter of 2001. And we're comparing the balance sheet to the prior year's quarter because of the seasonality in our business.

There's plenty of liquidity in the company as our ending cash balance on the balance sheet was 484 million versus 58 million in the first quarter of 2001. The availability on our bank lines of credit were approximately $1 billion at the end of the first quarter of 2002. Stockholders' equity increased significantly from a billion 276 last year's first quarter to $1.7 billion at the end of the first quarter of 2002. This is a 36 percent increase or $465 million.

Book value per share increased from $20.20 the end of the first quarter last year to $27.08 the first quarter of 2002, a 34-percent increase. Net debt to EBITDA on a rolling four quarter ratio improved from 2.1 times coverage last year in the first quarter to 1.3 times in the first quarter of this year. Our interest coverage ratio also rolling four quarters improved from 4.3 times in the prior year's first quarter to 6.9 times at the end of the first quarter of 2002. The asset side of our balance sheet also has significant embedded value.

And title

for residential development continues to be in short supply and the home sites that we own and control have significant value above the stated book value on our balance sheet. At the end of the first quarter, our owned home sites were 44 percent and controlled 56 percent of the total 130,000 home sites that we owned or controlled. We now have just over a two year supply of owned home sites and about a three year supply of home sites controlled.

Updating our goals for 2002 on our January conference call, we provided guidance for our 2002 EPS goals of $6.10 to $6.50 per share, but we indicated that we should be starting with a range of $6.10 to $6.15. These goals were that the first half of 2002 would fill the impact of the post September 11th sales weakness and if the market returned the second half of 2002 would be stronger. To the extent that we use our balance sheet to grow our business at a faster pace, we have the opportunity to achieve at the higher end of this 6.10 to 6.50 EPS range.

In January, we indicated that the second quarter of this year would be lower than the second quarter of 2001 due to two factors. First, a nonrecurring serving sale, which generated 13 million of profit in 2001 and the second quarter of this year was going to take most of the burden of the impact from the post 9/11 sales decline and the sales incentives that we saw after 9/11.

Currently, Q3 and Q4 for this year the consensus estimates approximate the goals that we established for these quarters on our January call. We remain confident with these goals for 2002 due to the following: We are entering the second quarter with a record backlog of two-and-a-half billion. We are seeing sales returning to pre-September 11th levels and with the exception of the Texas market, incremental incentives have also returned to pre-September 11th levels.

Our community count averaged 565 in the first quarter and we now have the community count necessary to achieve our delivery goals in 2002. We continue to focus on operating efficiencies with our dual marketing strategy and national purchasing programs and we also had tremendous value in our low land basis, which helps gross margins as well as gives us confidence as to our joint venture and land profit goals for 2002 of 55 to $65 million.

The goal for Lennar Financial Services was 90 to 95 million and we remain confident with this range as our capture rate for Lennar homebuyers has increased to 81 percent and our title and mortgage operations are operating very efficiently. Additionally, we continue to grow our broadband subscriber base. Corporate G&A remains under control and interest expense has been trending lower as our leverage has improved.

And most importantly, the consolidation story in our industry is real and will be continuing and we are positioned with a strong balance sheet and remain focused throughout 2002 on opportunities, which give us the potential to exceed the low end of our earnings per share goals.

And with that we'd like to open it up for questions.

Thank you. Today's question-and-answer session will be conducted electronically. If you would like to ask a question, please press star, one on your touch-tone keypad. We will proceed in the order that you signal us and take as many questions as time does permit. Once again if you would have a question that you would like to ask, please press star, one. We'll pause for just a moment to assemble our roster.

It appears our first question will come from

with Raymond James.

Good morning, guys.

Good morning.

Bruce, couple questions on the margin side if you will, was there any purchase accounting related to the acquisitions you mentioned in the quarter and if so, can you quantify that?

There was some purchase accounting with respect to both the Patriot and the

acquisitions and as you know in the first quarter, we do write up the inventory for the backlog that's in progress and it does have a small impact on the margins. Because we started Patriot in the middle of January and we closed on the Carolina operations at very end of December, the impact is not significant, but we'd estimate it's probably in the million-and-a-half range in terms of reducing gross margin by roughly a million-and-a-half dollars.

OK and then as you look at your backlog and actually two questions with regard to backlog, what is the backlog value X the JVs? Do you have that number handy, backlog value?

Yes we do. Let me just look that up real quick.

And I guess the follow-on there would be, from a margin perspective again, the deliveries in this quarter I suspect most of those orders were perhaps just prior to September 11th kind of the, what, third quarter ending last year. Is it -- is it -- safe to assume that the margins at least in Q2 and maybe into Q3 could be a little bit lower than what we experienced this quarter?

Yes let me take the first part of that question, the backlog dollar value, excluding joint ventures, was approximately 2.4 billion.

How does that compare with last year?

OK let us just see if we have that handy. And then with respect to your second question the post-September 11th sales decline that we saw of 14 percent and increased use of incentives is most likely to impact our second quarter and that's consistent with what we said on our January conference call and that's still the case. So the likelihood is we are likely to see some more of an impact in the second quarter as expected and that's reflected in the EPS goal that we laid out on the January conference call.

I guess while you're looking up the other backlog question just a follow-on with regard to margins. There tends, at least over the last couple two or three years, there tends to be a sequential or seasonal decline from fourth quarter margins to first quarter margins.

That's correct.

And is that a reflection of just higher priced product being delivered in the fourth quarter or what's kind of attributable to that?

That is what's happened in the past is you certainly have people that are focused on achieving their goals for the year and within those goals for year is the higher priced product, which tends to take a little bit longer to bill than the lower priced product tends to close in in the fourth quarter as opposed to the first quarter. And because there is more dollars in the larger product, you tend to see more of that closing in the fourth quarter. And this is a trend that's been consistent for many years.

Going back to your first question,

, in the prior year, we had about a $2.3 billion backlog, excluding the joint ventures.

OK, thanks guys.

You're welcome.

And moving on, we will hear from

with Deutsche Bank.

Good morning, Stuart. Good morning, Bruce.

Hi

.

Good morning.

A couple of questions -- one, I want to go back to the gross margin. You know, one of the -- one of the elements that people have been concerned about is the fact that the builders have done very well because home price realizations were advancing at a faster pace than -- than the CPI, and therefore there was an element of land price inflation -- how much the builders drive benefit in recent quarters and years.

However, in this quarter, your average price realization -- and I realize mix is a factor here -- but your average price realization was down in -- generally, on an apple to apples basis. It seems as though home prices are moderating.

The question is, your gross margin then is impressive given the moderation in home prices. Could you take us through some of the components of operational efficiency and whether or not they can sustain higher margins in a climate where price realizations are moderating? That's the first question.

Well,

, first of all, let me say that particularly for right now, for the first quarter, second quarter, third quarter, you're seeing some -- some variables come into the numbers that are going to kind of skew long-term trends. And those variables were right to the fact that we're coming out of the post 9-11 period, which really impacted pricing power. We went through an incentive period throughout the industry. Sales flowed way down. So you have kind of an anomaly that's filtering through the business right now.

But in terms of -- in terms of the ability to generate increased margin as a longer-term phenomenon within the industry, I think that we, and the other large builders, are going to continue to find ways to leverage size into real bottom-line impact. And this is not a short-term thing that you're going to see in our second or third quarter. But over the next years, I think that we're going to see consistently homebuilders finding ways just as we have done relative to national purchasing contract, we are going to find ways to leverage size into meaningful cost reductions.

And if you think through what that means, you know, we look at an average purchase price of $230,000, $240,000 per home. Figure half of that purchase price is in construction cost. As we focus on production costs and reduce costs by one, two, three percent, that's $1,000 or more per percentage point, and that multiplies against a significant number of deliveries. I think that there's real opportunity in the larger homebuilders to leverage our size.

Is it true, Stuart, though, that on a year-over-year basis and continuing for the balance of the year what we will see a moderating pattern in terms of your ability to raise price? And, therefore, any gains in margins that you do realize -- absent the 9-11 distortion -- are really the result of operational efficiency as opposed to higher priced realizations?

Well, again, you know, for the -- remember that for this year, right now we're talking about a second quarter and third quarter that have factored into them a very different environment -- environmental things that moderated our ability to raise prices. You're not going to see those numbers until the second or third quarter.

But I think that -- I think that as we look ahead and as we see the sales pace today, the interest in people buying homes today, I don't think that we're limited on the pricing power or purchase price side of the equation either. I do think that we're going to see efficiencies on the cost side, but on the pricing side, you've got to remember that we are in a very tight land environment. And it's likely to stay very tight as we move ahead.

And I think that that portends well for the -- the ability of builders to raise prices, because there's likely to be very little or less competition. And, certainly, no pressure to -- on the builders to reduce margins

inventory levels. Inventory levels are likely to be governed by the fact that land is in very tight supply.

Bruce, can you take us through -- you mentioned that the incremental year-over-year change in insurance costs for the -- for the year would be about $10 million. Could you take us through some of the other components of the increase in SG&A as a percent of sales and the specifics behind -- behind that increase?

Sure.

The two main components, we said, was the interest insurance and the broker commissions. And, you know, when you're coming off a period,

, like we saw post 9-11 and with a sales decline of 14 percent in the fourth quarter last year, you do tend to focus on sales a little bit more. And it's not unusual that we see selling costs going up.

Now we have continued to use brokers, so -- you know, broker commissions, you know, I would expect -- continue to be an issue certainly next quarter. Insurance costs I would expect will continue to be higher throughout the course of the year. But other than that, I think what you're seeing is we did open up all the communities we need in the first quarter in order to hit our volume for the year. And with our conservative accounting, we do expense all the costs associated with opening new communities, and that would be the balance of the increase in costs in the first quarter year over year.

OK. Terrific, thank you.

Our next question comes from

with Merrill Lynch.

Good morning, everyone.

Good morning.

Good morning.

Bruce, I had some financial services questions for you. Do you know what roughly your fixed to adjustable underwriting mix was for the quarter?

Fixed continues to be over 90 percent of our originations compared to variable. It was -- it's actually in the mid 90 percent for this quarter.

Mid-90 percent?

And then in your comments toward the guidance of that 90 to 95 million in financial services, do you have some expectation for continued refinance activity, or have you sort of flattened that out in your expectations going forward?

Well, our expectations were that refinance activity would be moderating. It still continues strong. Our expectation was that it would moderate and it would be lower than the prior year. And as we indicated, it probably impacts our title operations a little bit more, because about a third of our title operations are associated with refinance transactions, whereas on the mortgage side, it's only about 25 percent. And if refinance declines on the mortgage side, we tend to try to replace that with more purchase transactions.

Having said that, however, we did assume that refinance activity would certain be lower than prior year levels.

OK.

And then, you made the acquisitions in Maryland and the Carolinas. Can you comment on any markets where you'd be deploying capital on an organic basis?

We are -- we are currently working -- we currently have set up two brand new everything's included programs, one in Denver, one in Tucson, that are at the front end of -- of development, with just a couple of communities in each division already up and running. And those -- those markets are likely to be very strong. Everything's included markets leveraging off of an already existing design studio approach.

Likewise, in Palm Beach County, Florida, we have just initiated a design studio division, which will grow organically alongside of its everything's included sibling. And in all three of those programs -- and there are others that are out there brewing -- we expect to see good organic growth in those markets by leveraging marketing strategy.

And I'd just point out that our Chief Operating Officer, Bob Strudler, is probably the most focused person in the country when it comes to leveraging operations and focusing on how we get these dual marketing strategies up and running in each and every one of our locations.

Excellent -- thank you.

And our next question will come from

with

.

Good morning, guys.

The question was sort of still on capital deployment, and obviously you had your cash balance dropped for -- for normal operating reasons. But as you look at deploying cash and your -- and your ability to

start borrowing off the line of credit, what do you see currently, Stuart, as your greatest opportunities comparing acquisitions of homebuilders or financial services versus land acquisition opportunities versus buying your stock? What are your sort of current thoughts?

Well, still -- currently, our predisposition is to grow the company. And, of course, organic growth is a very big focal point of the company. And I think that we do it exceptionally well. So we are constantly deploying capital relative to land opportunities that I just highlighted, dual marketing strategy opportunities. And these are ongoing programs part of -- part of the cash that you see having been reduced fourth quarter to first quarter is normal operation, and part of it is just good solid organic growth in markets in which we're already located. I think we do a great job organically.

But relative to the question of stock buyback versus growing through a strategic acquisition, we have -- we have determined that we would like to leave open the opportunity to grow strategically through acquisition. And we are currently looking at a number of acquisition opportunities that we have been evaluating, that we've been working with, over a long period of time. And it is with those in mind that we are predisposed to look at acquisition and growth as opposed to shrinking in stock buyback right now.

We think that we can garner better long-term returns and better leverage SG&A and reduce costs by growing the company and by adding to the volume.

OK, great.

And, Bruce, just one question. What was the loan origination volume for the quarter? Do you have that anywhere handy?

Yes, I do. Loan origination volume was 1.2 billion for the quarter.

1.2 -- OK, great -- thanks.

You're welcome.

And just to let you all know, if your answer -- or, excuse me, if your question has been answered, you can remove yourself from the queue by simply pressing the pound key.

And the next question comes from

with Salomon Smith Barney.

Hi. First of all, I wanted to say, you know, congratulations on a strong quarter. And I just wanted to follow up a little bit if I could on the question of home prices. And, first of all, are you -- are you currently seeing the ability to raise prices in any of your markets, or are we merely seeing a reduction of discounting going on or concessions?

It's really twofold. It's primarily the reduction of incentives, Steve. However, on selected areas, you do see the ability to still raise prices in selected communities.

OK.

Would you say those are concentrated in any particular price point or geography?

Steve, I would agree with Bruce. It's very specific. I think that as you look at the eastern seaboard, and particularly the

market, you're still seeing the ability to raise prices. You look at a market like the San Francisco Bay area, that really lost pricing power because of the technology bust, and a variety of other factors, you're seeing pricing come back very strong and incentives go away.

I think that we're probably in that market back to the 9 -- to the pre 9-11 period in terms of pricing. And maybe even breaking through some of those numbers now. So there you have kind of the two extremes as I would see them. And other markets kind of fall in the middle.

OK.

And, also, you -- I absolutely agree with you, I think the key to the strength that we've seen recently has been the inability of smaller builders to find land parcels. But, you know, on that vein, I wanted to ask if you have seen a pickup in land development in any of your markets, you know, worthy of mention, particularly as to -- with an eye towards, you know, when you think those parcels might become available on the market in a sort of fully developed condition.

There is clearly not a big pickup in terms of land development. There are a lot of people out there trying to get approval. I think the governing factor, again, is the approval and entitlement process, and it's limited by the, "Not in my backyard" attitude, by the environmental concerns, by concurrency issues. There are just a variety of factors. In some of our most significant markets, you're seeing local legislation come into play that is even further restricting and limiting the availability of land for approval.

So the answer is, no, I do not see currently, nor do I see in the future, a flood of land coming on line. And normally, you would see where -- where supply is short, everybody would go out and buy land and get it approved. And you'd see this big flood of land coming down the pipeline. You just don't have that this time around because the approval process has slowed way down across the country and in many communities. Most communities, there's an anti-growth sentiment.

Great.

And last question, if I might, with respect to order trends -- you know, your order trends were up about five percent, I think, excluding

this quarter. I would assume that there was some variation across the month. I would probably also assume that the most recent months have been somewhat better than the beginning, but wasn't sure about that. I was wondering if you could comment on that, and if you're willing at all to give any indication as to how things are so far in March?

Well, to answer your first question, Steve, we did see that in December we had a two percent decline year over year in new orders. And it really improved as the quarter continued, particularly in February. And as we got to the latter part of the quarter it continued to improve week by week. So February was a lot stronger than December and January was.

And, you know, I'm not talking about March, at this point, but I will tell you, you know, from a market to market standpoint that, you know, California has come back fairly strong. Florida remains very stable.

that whole Maryland, Virginia area is very good. Our

is strong. The new acquisitions we had on the East Coast are doing very well. And, you know, probably the only softness is -- is in the central region -- you know, kind of in that Texas and Minnesota area. And that -- that would be just an update, if you will, in terms of the markets post February results.

OK, great.

Thanks very much -- good quarter.

Thanks.

Thanks, Steve.

from

has a question.

Good morning.

Good morning.

Good morning.

I still don't understand why you're leading to 90 to 95 million on the financial services given the fact that your first quarter results were -- were dramatically stronger than not only the last year, but equal to third and fourth quarter. Historically, these operations do run with your deliveries, and as you all know, the deliveries will be wrapped up and

in the fourth quarter. Given the fact that a third a quarter of your business could certainly go down the refinance business, wouldn't the -- the increased deliveries and capture rate more than offset this to have improvements?

To get to your number, you're going to have a flattish or so numbers in this -- in this area despite improvements in deliveries.

Yeah, good question,

. And

look at the results in the first quarter, we did have improvement in the mortgage area, and, you know, we are seeing that refinance is going to back off a little bit. And on the mortgage side, we hopefully are replacing any refinance loss with some purchase business. But at the end of 2001, where we had that increased volume you're referring to, the last week worth of loans -- especially when you have a concentration as we did at the end of 2001 -- those loans are sold after yearend, and the benefit goes into the first quarter.

Now as we look forward with our title operations, we're seeing a significant improvement as we combined all of our title operations under one umbrella. We're also seeing our broadband operations, including as last year -- if you remember -- we were writing off -- we wrote off all of our investments in technology and Internet, and that did impact last year to some extent. And we're continuing to grow our subscriber base there.

So when you look at all the components, we are fairly confident that we'll be able to be in that 90 to 95 range.

Secondly you -- why haven't you been more aggressive on an acquisition given the fact that you've got an incredible 20 percent net return on capital last year after tax and interest included, which -- and I might add yours is 14 percent. What is your goal? I don't think 20 percent is sustainable. Is it 15 percent or is there a goal for acquisitions or something on that basis on your net return on capital?

Well let me answer both of those questions, first of all, Jim the reason that we are not -- we have not -- been more aggressive is that we want to make sure that every acquisition we make holds us in good stead for the long term and we are -- we are very careful to make sure that we're not only buying a good company that can generate good earnings or a good acquisition that can generate good earnings, but that we're not paying too much for it and in that regard we do have a very clear goal relative to return on capital.

Our return on capital goal as stated is between 15 and 20 percent and we need to able to make sure that, if we're making an acquisition that we can see our way clear to generating that 15 to 20 percent return on capital goal within a relative short period of time. We recognize that we might not be able to achieve in the very short-term after an acquisition, but we want to make sure that we see our way clear to getting there in the wake of an acquisition.

Could that be six months or maybe a year, within a year or so?

Yes sir.

Which one, six months or a year?

About six months to a year and that is the timeframe.

OK.

It is six months to a year and each one will be looked at differently. And as you know, every combination has different prospects. One combination has some land opportunity and another one has some operational efficiencies. There is no clear-cut box within which we make each and every one of our acquisitions. It's not a cookie cutter. We're always looking to leverage opportunity and to find

we can bring to bear on making our company overall better.

OK and lastly on your SG&A, the increase in broker's commissions is this -- I mean normally brokers are -- get paid about double about what the inside brokers get, like three percent versus one-and-a-half, everybody is different, but is this a trend more to the outside brokers or given to inside and outside brokers more to sell the homes?

I think that the trend that you're seeing in sales commissions, broker's commissions has been a trend and is likely to continue for some period of time, but it is something that fluctuates a little bit. And as sales get a little bit stronger, the market continues to strengthen we think that that number's likely to go down in the future. But for the foreseeable future, we think that the trend is likely to remain the same.

But it isn't the raise in the commission it's a great proportion of outside brokers then?

That's correct.

It's -- that's -- it's that's correct.

OK, thank you.

Thank you. Yeah this'll be the last question I think, Michael.

All right thank you, sir. We will take our last question from

from CS First Boston.

Hey guys congratulations.

Thank you. Thank you.

Just a quick question on the sales price in Texas, how much was it down year-over-year and do you see that pricing kind of bottomed out or have you seen a turnaround since then?

Well the decline in the average sales price in Texas is due to two things: One is there was some increase in some incentives and two is we've been expanding in Texas. We have been focused on affordable product in that market as well. So I would say that the lower sales price in sales Texas is likely to continue certainly from a product mix standpoint.

From an incentive standpoint, we as the year continues the incentives moderate as the market strengthens.

OK. Can you -- can you -- give us any color in terms of the incremental impact on orders and deliveries from the acquisitions for the quarter?

Sure. Patriot,

and

deliveries during the quarter were similar. I'd assume it was around a 100 or so deliveries, a little over a hundred deliveries in the quarter and our backlog increased from these three acquisitions at the end of the quarter to 400 homes. So we did see immediate benefit and the purchase accounting did tend to offset some of those deliveries that we saw in the first quarter

.

OK And just lastly can you give us an update in terms of what you have for a share repurchase authorization currently?

There's 10 million shares authorized to be repurchased by our board of directors.

And did you purchase any this quarter?

No we did not repurchase any in the first quarter.

Thank guys.

Thank you.

Thank you. And just in closing, we'd like to say thank you to everybody for joining us for the first quarter. We look forward to continuing to achieve the results that are expected. As noted, we feel that the homebuilding industry is looking strong and looking good as we look ahead and look forward to getting back with you for our second quarter conference call. Thank you.