MDC Holdings Inc (MDC) 2002 Q3 法說會逐字稿

Welcome to the MDC holdings 3rd quarter earnings release. All participants will be able to listen only until the listen and -- question and answer session. This conference is being recorded at the request of MDC Holdings. If anyone has any objections you may disconnect at this time. I would now like to turn over to Joe Fritz who will read the statement on forward looking statements. Sir you may begin.

Before I introduce Larry Mizel and Gary Reece. It should be noted that certain statements made during this conference call, including those related to MDC's anticipated Home gross margins, backlog value, revenues, and profit and response to the questions, may contain forward looking statements within the meaning of the private secruities litigations format of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause the company's actual results, performance or achievements to be materially different from the results, performance, or achievements expressed or implied by the forward looking statements.

The company's actual results, performance, and achievements may be impacted by various factors including among others, changes in general economic conditions, changes in interest rates or labor and material costs, the availablility and cost of insurance, weather, government regulations, consumer confidence, actual or threatened terrorist acts and other acts of war and the results there of and competition. Additional factors that could impact the companies actual performance are set forth in the company's 2001 form 10-K and second quarter 2002 form 10-Q. I will now introduce Larry Mizel, Chairman of the Board and Chief Executive Officer of MDC Holdings, Larry?

Good morning. We would like to welcome each of you and thank you for participating in MDC's 3rd quarter 2002 conference call and web cast. We had a tremendous quarter, establishing 3rd quarter records by virtually every operating and financial measure. We are very proud of our results and I'm especially proud of or employees who's dedicated performance made these accomplishments possible.

Like MDC, most other major public builders continue to post record operating results. Home orders generally have increased significantly year over year and many builders are raising their public guidance for future earnings. Still, we continue to face the question about the existence of what is been called the--a housing bubble. While we have not been blinded by our recent successes, we do not see a bubble particularly in our market segment, that being new, single family, detached homes at affordable price points in growth markets around the country.

Instead, we are seeing barriers to production, that's just tighter lending standards by the banks and tougher entitlement processes, creates supply contraints that have lead to unprecedented low levels of unsold new homes on the market. These barriers have created opportunities for us and other large publicly financed home builders to take market share and grow, even when the market as a whole stabilizes or declines. Taking advantage of these opportunities, we have increased our active communities by 28% since the beginning of the year and expect to increase another 10% before year end. This growth has contributed to seven consecutive months of record home orders in the highest quarter end backlog of our company's history.

On the strength of this backlog, we expect to close more than 8800 homes in 2002 and to establish new company highs for revenues and earnings in the 2002 4th quarter and the full year. Further, our expansion in active communities should position us to close more than 10,500 homes and realize year over year growth in operating performance in 2003. These results will keep us on track to achieve our stated goal of doubling the size of our company in less than five years. I will now turn the call over to Gary Reece, our Chief Financial Officer, who will describe more specific financial highlights of our 2002 3rd quarter.

Thank you, Larry. Beginning with net income, net income for the quarter reached $43.6 million, that's almost 8% higher than $40.5 million in the 3rd quarter a year ago. Representing $1.57 a share compared to $1.48, up 6%. The $1.57 for this quarter in addition to being up year over year is also 15% above the analyst consensus estimate of $1.36. For the nine-month period, we were also at an all-time Nine-month high at $110.2 million up 2% over $108.7 million for the nine months in 2001. Representing $3.96 a share for this year compared to $3.99 a share a year ago. Revenues reached a record level in the third quarter and for the nine months. We had $582 million of revenues this year, up 12% over the $521 from a year ago and for the nine-month period, 1 million---$1,547,000,000 in revenues $1,449,000,000 of a year ago.

Our record results really were the---were resulted from record profits from both home building and mortgage lending segments. Our home building operations had record 3rd quarter earnings of $75.5 million, up 5% from last year and the for the nine-month period, we had home building profits of $194.5 million. Behind this increase primarily was a 10% increase in our home closing levels which reached a high for the 3rd quarter of 2,276 homes compared with 2,076 a year ago, and for the nine-month period, 5,906 closings compared to just short of 5,800 closings a year ago. Our closing levels really--the increases in the quarter came primarily from Colorado which was up 102. Las Vegas up 141 closings. Up 85% and Virginia was up 25%.

We also saw average selling prices increase in the quarter from $243,000 to $249,600. And for the nine-month period, our average selling prices were $255,000 compared to 245 a year ago. We really saw in the quarter, our average selling prices increased in all markets except we did see declines in Colorado, Virginia, Tucson and Las Vegas as we continue to focus on lower price points in those markets. On a mortgage lending side, we also saw a record quarter. At 5 million--$5.9 million in earnings. Up 3% and $16.1 million for the nine-month period. The primary factor behind this growth was an increase in gains on sales in mortgage loans, up 19% for the quarter and up 31% for the nine-month period. And we reflected for the period a capture rate in excess of 80% which is one of the highest capture rates in the industry. We continue to strengthen our balance sheet. We have made continuous progress in that category throughout the last decade.

I would like to point out and reemphasize some points that we have made in the past that our balance sheet is what you see is what you get. We have no off balance sheet financing, no joint ventures, no good will, and we have no specific performance arrangements with respect to the option contracts. We have an equity level that reached $755 million at September 30, 2002, which is up 24% from a year ago. This represents $28.33 a share. This equity amount has increased as a result of a strong performance over the last year but does reflect a reduction whether repurchased during the quarter of approximately 493,000 shares of MDC common stock for a aggreget purchase price of $19 million.

We do have an outstanding repurchase program which has approximately 443,000 shares remaining to be repurchased under that program. We also --our EBITDA for the quarter, increased to $83.5 million and for the nine month period, hit $214 million, contributing to an interest coverage ratio in excess of 14 times for the quarter and reached 16 times for the last 12 months. Our debt to cap ratio, continues to rank among the lowest in the industry for this period of time, which is generally the seasonal peak for debt levels and debt to cap ratios. We ended the quarter with a debt to cap ratio at .36. We did hold some $35 million in cash at the end of the quarter, so net of cash, that debt to cap ratio was actually .34. Debt to EBITDA also at very low levels of 1.37. Before the cash and 1.26 afterwards.

In addition, we ended the quarter with in excess of $310 million in liquidity, this was aided by the efforts we achieved during the quarter to expand and extend our home building line of credit and as seen in the press release and in previous releases that are $450 million line was expanded in the way of commitments to 538 million. We do have an accordion feature that permits that to be extended even further to $600 million, subject to additional commitments. And we did extend that credit until July of 2006. So it's a four-year credit. Our inventory levels continue to--have moved up on a seasonal basis to support our growth. The growth in our backlog and the increase in our active communities which will fuel the growth in the future.

However, our investment in unsold homes we continue to watch closely and the investment in unsold homes is actually down 16% from where it was a year ago. We have less than 90 homes in the company that are finished and unsold at this point in time.

I'd like to spend a few minutes on orders and back logs and community count. Which is really the story behind where this company is headed in the future. You can see we've created some level of visibility as to where we're headed in the fourth quarter of next year.

Orders in the last seven months have been at record levels. We saw 3rd quarter orders up 811 units from the 3rd quarter of 2001. That's a 50% increase and our September orders were up almost 100%. The 7,968 home orders we've received for the first nine months of the year, already exceed the 7,700 orders we received for the entire year in 2001. So the 4th quarter will all be upside to that. In the 3rd quarter, we saw orders up in every market. The largest growth coming in Phoenix, which was up 113%, 311 units. Very strong growth. Our subdivision count from last year has increased from 18 last year, to 32 this year.

We've also seen with the strength of the market, the sales per active subdivision is increased 50%, to 6.5 per month per community. Las Vegas was also up almost 200 units, 123% which included 57 orders from the Lang Communities we acquired in April and our subdivision count in Las Vegas is up 100%. Also up 60% in Virginia with the subdivision count up 100% and in Southern California, our orders in the quarter were up 30%, though the subdivision count was flat. So Southern California continues to be one of our hottest markets from a demand standpoint. Traffic was up in most of our markets an average of 14% in the quarter and our can rate was down almost a full 10 points from where it was in the 3rd quarter of last year. It was up in the mid-30s and obviously that situation was impacted by the events of September 11th. However, we were down back into a more normalized mid-20s rate from the can rate in the 3rd quarter of this year.

These strong orders have contributed to a record backlog in September 30th. We had almost 5100 homes in backlog, up 30% from last year with a future sales value of $1,350,000,000. Active subdividisions, as Larry had mentioned, are up 28% year to date, from 137 at the end of last year to 175 here at the end of the 3rd quarter. We expect to go to somewhere in the 190 range by the end of the year. Largest growth coming in Phoenix, which is up 14 subdivisions. Virginia is up 9, Vegas is up 8 and of course we've entered Utah and Texas and have active subdivisions in those markets as well.

As you can see, a lot of our growth is coming in markets with average selling prices much below where we are today in the mid-250s. Average selling prices in Phoenix, Vegas, Utah, etc. are more like $170. Our lots control today to move up with the subdivision count. We're up by 25%, from 22,000 lots to over 28,000 lots.

And in addition to that, these are lots we have under control, but we have in excess of 15,000 lots in various stages of consideration. So we have all the lots that we need to fuel the growth we're seeing over the next several years. And of course this growth in subdivision count and lots, our record backlog have positioned us to close the 8800 homes that Larry mentioned, to reach and exceed 10,500 homes next year and put us well on our way to achieve our goal of doubling the size of the company in less than five years. That concludes my prepared remarks. I'd now like to open the call to questions.

Thank you sir, at this time we are ready to begin the questions and answer session. If you would like to ask a question, you may press star 1. You will be announced prior to asking your question. To withdraw your question, please press star 2. Once again, to ask a question, please press star 1. Our first question comes from Mr. Armando Lopez of Morgan Stanley. You may ask your question.

Yeah, hi, good morning.

Good morning, Armando.

Just a couple quick questions. I guess first, in terms of pricing, Gary, you mentioned moving into areas that have lower average selling price. Where would you see the selling price as you guys move into these new areas, where would you see the selling price kind of level out?

Armando, I don't know that we will see it level out, but I can tell you that you can see very clearly that the growth is coming in markets and in areas which are more affordable. Even though we are growing in Virginia which has a higher than our average selling price. We are focusing in markets like Texas and Phoenix and Las Vegas. And even in Colorado, we are looking at lower price points. So the trend would appear as we grow, that those average prices would move down. Not with standing potential for price increases. It really doesn't have anything to do with what I'm saying. We may still have increases in these markets, but in terms of the mix, it'll tend to move in a downward direction.

Okay. So,--and--just one other quick question then. In terms of [this years] buy back, you guys mentioned with the stock where it is now, I mena, you have -- I missed how much you have left in authorization.

443,000.

So, I mean,--are there-- as you look at the stock now, like how do you feel about share buy backs now, given the current environment?

Armando, we have--obviously we have jumped into the market when appropriate. Over the last 90 days. And we still have shares authorized under the program. We'll continue to consider alternatives. We have alternate uses as far as for capital and we are growing. But that certainly is one of the considerations we will have. As we proceed over the next few weeks and months. Okay. Thank you.

Our next question comes from Mr. Joseph [Stroika] of Merrill Lynch. You may ask your question.

Good morning, everyone.

Hey, Joe.

Hey, Gary, can you back up for us on the closing of the orders and the subdivisions, what the Lang impact was? I know we can see the Utah numbers in the geographic break up, but can you, just for the total of what it would have been versus each of those three numbers.

Sure. I believe the active subdivisions in Las Vegas were 4. The orders in the quarter in Las Vegas were 57. And we closed 103 homes in Las Vegas from the Lang subdivisions--

Okay, and what was the -- I don't think you broke out the subdivisions geographically? How many Utah subdivisions to give you the Lang total?

Well, the active subdivisions I mentioned, the four are actually in Las Vegas. Utah has 4 as well.

Okay. And then you had said last quarter that your cash rate had drifted down to the low 80s because you acquired had acquired Lang. Are you doing mortgage ops in the subdivisions---the Lang subdivisions now?

Yes, we are.

Okay.

That's taking a little while to get going there and to get caught up, but we do have a mortgage. Home American has an office there and we're starting to see very strong capture rates on the homes we're selling today.

Okay and then lastly, on the mortgage business, do you what about your fixed to adjustable, underwriting, [INAUDIBLE], you know, the difference between fixed and adjustable in the quarter? [INAUDIBLE].

For the quarter, it was roughly 85% fixed, 15% variable.

And do you know the average loan to value was? On the originations?

I don't have that figure handy right now. Joe, I can call you later.

Okay, [I guess call me later]. Thanks, guys. Good quarter.

Thanks.

Our next question comes from Mr. Dennis McGill of Credit Suisse First Boston. You may ask your question.

Good morning, gentlemen.

Good morning.

Following up on the previous gentleman's question, what percentage of your loan originations are FHA and VA?

FHA and VA is approximately 25% of our total originations.

Would you be able to break that down between the two or do you group them together?

Right now I have all my governments together. I do have that information and I think we -- I can certainly provide that to you.

Okay, and who generally buys these? Who are your biggest purchasers of these mortgages?

It a-- it uh--It varies. We have agreements with a number of agencies to purchase these.

Okay. You mentioned community accounts you expect by year end. How about for 2003? Do you project that far out?

We have not. We have not projected or disclosed where the community counts headed for next year, but we do expect that count to move up as long as we are---we are on track to meet our goal with doubling in size. We will have to continue to grow that count in pursuit of that objective.

Okay, great. And lastly, I was just wondering, if you could go over the current business that you guys are seeing right now.

I would have to say -- I don't want to be overly general, but as we look around the country, the markets that we operate in, in general are very healthy.

As I mentioned, the strongest of the markets from a demand point seems to be Southern California. But even Northern California has come back nicely. Sacramento seems to be doing even better than the Bay Area. Virginia-Maryland continue to do very well. We see strong pricing power in those markets. Both Phoenix and Las Vegas as a market as a whole projected early in the year to be down in terms of starts and closings. Now, have raised their estimates to equal or exceed the record years they've had in the recent past.

In Colorado, while it's seen some softening at some of the higher price points, we've seen our focus on lower price points has enabled us to continue to show strong order growth. In fact our orders were up over 50% here in the 3-quarter and have been up nicely in the 10% range for the year to date. That's due to a large degree to the fact that we do generally focus on a lower price point.

I think, in this market there's a general misconception that we are a high end builder. As we look over the past year, what we find is that from a base price standpoint, close to 90% of the homes that we sell are below $300,000. And that's a part of the market that is doing pretty well right now. So, at the higher ends, less than 2% of the homes we sell are over $500,000. So we really are focused on the sweet spot of this market as well.

Alright, thank you very much, guys.

You bet.

Our next question comes from Larry Huran of Parker Hunter. You may ask your question.

Most of my questions have been asked, but I--you gave I missed it. What was your community count at the end of the 3rd quarter last year?

It was 141, Larry.

Okay, thank you very much and you are doing a great job.

Thanks a lot.

Mr. Steve [Precoco] of Lark Research, you may ask your question.

Good morning, Gary, you went through all of the markets, but we've heard one or two other builders say that Denver has softened quite a bit recently. And if I look at the employment stats, I believe that, employment has declined 2% year over year. Which would in my mind, make its tough to sustain housing volume. Could you talk a little bit more about what you're seeing and why your performance has been so strong in light of that? If you agree with what I've said.

Steve, what we see is the fact that we're continuing to see a lot of buyers in the market. Traffic is actually up. I think alot of it has to do with our product mix. With our locations which are in -- being the largest builder here, we see the best land deals first and we get the pick of the litter from the standpoint of locations. So we--we're very--we have great locations, we have terrific product diversity. And we're the best merchandisers in the market. I think we distinguish ourselves with product, with service and with location.

So would you say that you are the-- market has softened some and you're out performing it?

Basically the softening, Steve, has come in the upper price points. And so we're--those price points we have seen some softening and some slowing, we do offer some product in those price points, but it's a--as I mentioned, a relatively minor piece of what we do. And by--through the success of our seasons product which averages $200,000 and our other product series in the mid-200s, we're able to continue a strong pace. There are--we've seen--I mean, there are some level of incentives over our standard that we're offering here, but nothing really dramatic.

If employment is down, where are the buyers coming from? Is there anything that you can say about the profile of your buyer? I don't know you said it's 25% FHA, VA, I mean, that strikes me as relatively high. I don't know how that compares to other builders.

Oh, I don't either. I know there a number of builders who focus on the lower price points, even lower average selling price than us. Who's percentages are quite a bit higher than that. We do offer a lot of product in the lower price points. As I said here in Colorado and Phoenix and Las Vegas and our markets are such that that's the way it works out.

I don't know what else to say about it except that we even here in Colorado Springs, we get a very---Colorado Springs is heavily oriented towards the military. There is a lot of exciting things going down there. That is a heavy government and VA oriented market which tends to skew it here. I think part of our success here in Colorado has to do with our--the diversity. We are not just located in Denver, we're in Northern Colorado which has some more affordable price points and we're the largest builder in Colorado Springs which has also helped our performance. So as things--as things decline a bit in the Denver Metro Area at the higher price points, we have other locations around the state where the buyers are still coming in.

If you look at other markets around that you operate in, say Phoenix and Las Vegas too, I mean those markets historically have been driven by high rates of employment growth. Over the past year or 18 months, employment growth has dropped there too. I mean, the last I looked, Phoenix was actually down a percent and Las Vegas while it was still positive, was down, I mean, Las Vegas, we used to see 4-5% employment growth. Which really drove--I mean, that represented an influx of people. And I think drove the housing markets. Those were Phoenix and Las Vegas, two of the hottest markets in the country. Given that employment growth has declined, and yet we haven't seen any softening in the housing markets, it raises a question about how long it can continue. What's your view there? I mean--and it also it gets to the question where the buyers are coming from in those markets as well.

First of all, Steve, what you are -- job growth may be the driver for growth in these markets as a whole. I think what you have to look at for us. And it's a key point--I think it's a--bringing out a key point that needs to be made. And that is that our growth and the growth of the other large builders are not dependent on the growth of the markets themselves. What we're doing is, in this environment where there have been severe restrictions on lending being placed and barriers to entry created by entitlement processes being extended and the large, well-financed public builders have a distinct advantage over the smaller builders. We are clearly taking market share. What you're seeing in Vegas and Phoenix has very little to do with the job growth.

If you're saying job growth is down and we are doubling in size in Las Vegas, that's happening because we're taking market share from the other builders. And it's that way. It's that way in those markets, it's that way in every market in the country in which we operate.

Yet you say you're doing that, I mean, without taking any additional financial risk in the way of commitments, joint ventures, off balance sheet accounting, is that right?

Absolutely. Every project we own, every project we purchased, including those we bought from Lang were under written individually subject to our guidelines and return criteria. Each project's been hand-selected and our criteria has not changed in the last decade.

Why then do--why do you continue to expand your bank facility? I mean, I would imagine that home building debt was $255 million this quarter, you said that it's a peak level. Why would you need $600 million in financing, especially since I would imagine that you have to pay commitment fees to keep it that high.

It's a--as our back log is grow and company is growing, we have large fluctuations in our needs from day to day and week to week to build a back log that we're building. We have a growing business and we intend to achieve as high a level of liquidity as possible. That doesn't mean we want to finance our growth with bank lines, but we don't see any downside to having that level of liquidity support behind us. Steve, why don't we--if you have some other questions--

No, that's it. I'm done, Gary, thank you.

Okay, thank you.

Our next question comes Mr. David Einhorn of Green Light Capital. You may ask your question.

Alright, good morning, guys.

Good morning, David.

I actually have a few questions if I could. Could you comment a little bit on the sequential up tick in gross margin? Is that because you sold through last quarter the more incentive sales after 9-11? And second, could you talk at all about the incentives that you're giving now and the opportunity for margin sort of, in the backlog as you see it? And then third, along the same lines, as you go to lower price points, is there a gross margin impact with that? or is it just fewer dollars per home presumably at a same or similar margin?

Okay. Well, let's take them one at a time. Maybe the last first because I can remember that the best. The terms of going to a lower price point, that really equates to a lower aggregate dollars. We do see high margins, even at lower price points. We don't -- there is no correlation necessarily between lower price point and the level of margins.

What we are seeing though incentive-wise, incentives today are probably a little higher around the country than they were early in the year. Just because that's kind of the way it runs seasonally. Our orders are usually lower in the Fall and the Winter and we see a little bit higher incentives to keep the sales pace up. The incentives in backlog are probably a little bit -- the homes closing this quarter, incentives were probably a little bit lower than they are in some of the backlog we sold in the third quarter.

Although, incentives in most markets, are at or around our general average which we do offer an incentive which is tied to our mortgage company participation and our insurance companies. So all the incentives that we--there's a couple of key points about the incentives. We generally--we'll not give the incentive unless they use our mortgage company and our insurance agency and number two, the incentive is generally used in our design center for options and upgrades in which we have about a--somewhere between a 40 and 50% margin. So that mitigates the impact to a large degree of movement in incentive levels.

As far as the sequential growth in our margins from one quarter to another, there's a whole list of things that contributes to that. There's nothing that really stands out except that just we did see a few more homes from the last half of last year close in the 2nd quarter than we did this quarter and the impact of some pricing power and lower incentives and homes sold in the first part of this year that closed in the 3rd quarter. Nothing really stands out, no single issue. As we were talking about margins, Dave, the thing that--- extending that to looking forward and you had asked about expectations for the future and we don't really--we haven't really given guidance on that.

But one factor that I've talked to many of you about as we look into next year, we are seeing as we discussed, a large increase in the number of our active subdivisions. and it's going to be somewhere in the neighborhood of 35% in that one 12-month period in new subdivisions that would be contributing closings next year. And these will be the new subdivisions with initial closings coming early next year. And as you know in the way-- in the life cycle of a subdivision, the margins are generally lower at the beginning of the subdivision than they are at the end. So we'll see if your subdivision count is staying relatively the same as it has over the last few years, you've got some mature subdivisions with high margins going off and some new subdivisions with low margins coming on and they kind of balance each other out. With this extraordinary increase heading into next year, we tend to have the effect early in the year of lower margins than we would expect to see as these subdivisions mature.

Can I ask one other topic?

Sure.

You guys have filed a bunch of shelf registrations over the last few weeks. Can you comment at all what that's for and what the financing plan might be?

We have the number that we filed is really a function of the fact that we did amendments and added guarantees, we added some guarantors. The key point is that we raised the level of the shelf from $300 million to $750 million and that just became effective. And the reason is to really prepare ourselves for the capital needs that is we will likely face over the next period of time to finance our growth. We don't intend to -- even though we have an expanded line of credit, we don't intend to use that line of credit to finance long-term growth. So we have put this shelf in place to enable us to react quickly to market conditions in order to meet those capital needs.

Thanks a lot, guys.

You bet.

Mr. Alex Barron of Franklin Templeton, you may ask your questions.

Good morning and congratulations.

Thank you.

I had a question here, I was wondering if you can give us some kind of idea or update on what product you are going to be building in Texas and your strategy there in terms of price points and then I had a couple of follow-up questions.

Absolutely. In Texas we are going to focus on the first time move up buyer. Just as we have in most of our other markets. That will probably be the exclusive focus in that market. We expect the price points to range from the low 100s up to around $200,000. And we really build-- right now we build a very simple product that sits on two different sizes of lots. And we're going to build it over and over again. We've already gotten control of close to 1500 lots in that market and they're all to utilize these two product lines. So we're in a very affordable high-volume, high-velocity , high-demand price point for that market.

This is in what city, Dallas?

It's in the Dallas/Ft.Worth metropolitan area. So it covers the gamet. In fact our first project is in North Fort Worth, in the Alliance Corridor.

Okay. And then, I'm not sure if gave the break down of lots in terms of option versus owns and what kind of price trends you're seeing in terms of lots?

The lots that we own as of the end of the quarter, we owned 16,975 lots. We had options on 6,288 lots. We had over 47 homes in various stages of construction. Generally pricing-wise, it varies pretty dramatically market to market, but the general trend is the lot prices continue to move up.

Okay. And then lastly, are you going to be considering acquisitions as a means of growth at sometime next year?

We will consider acquisitions as a means of growth. We utilized that this year with the acquisition of the Lang Assets. And we'll continue to look at opportunities in the future.

Okay. Thank you very much.

Mr. Timothy Jones, of [INAUDIBLE] you may ask your question.

Good morning. A couple--um. You named I think four markets that were under $175,000 average price. Vegas and Utah being two of them. Was Arizona one?

Arizona is one, yes.

And what's the other one?

We have Las Vegas, Phoenix, Tucson, Utah, Texas.

Okay. Arizona is Phoenix and Tucson?

Yes.

Okay, so basically three market segments. These are growing pretty fast. You did say you expected the average prices to come down. Did you give a number for 4th quarter for the for the year and next year [up to percent] especially next year?

No, sir, I did not. Not a percentage-wise. We do expect it to move down.

You said that 2% of your homes were over 500,000, you give another over 3 or 250. What was that percentage?

The base price of homes we sell in Colorado are below $300,000, is almost 90% of the homes that is we sell in the market. And of the final selling price, you know, with options and upgrades, the final selling price is about 80% of the homes are below $300,000.

An the 500,000, does that include the upgrades, does that relate to the 20% or the 30% number?

Both. It's between the 20% and the 30% number.

20 is a better number. Obviously the percentage is higher in Denver, but probably less than 30%? Is that correct?

Very likely, yes.

Okay now you are talking about your deliveries rising 1700 units or 19% next year. If you are backlog up 2200 or 77%. Are you being conservative or are you expecting housing orders to slow down or is it the inability to ramp up production fast enough to deliver them?

Is there an all of the above? Some of this increase is going to translate into 4th quarter closings. I mean it would have to--

I understand that.

It would have to in order to hit the number we are talking about.

Obviously.

A lot of this will depend --.

You would expect the orders to be up in the 4th quarter versus the low comparisons?

That's correct.

So that differential of 2200 probably is there, it remains there?

Yeah, you know, Tim, one of the things that happened is it is taking -- as we transitioned from a point of building spec homes to building to suit, the number of homes in the backlog that have not yet been started has increased pretty significantly. And I think at the end of this quarter, we had somewhere in the neighborhood of 1400 homes in our backlog that have not yet been started, which is almost twice as many as a year ago. So that's--that is causing a delay from the point of sale to point of delivery of the home.

That's a good answer. Okay, thank you.

Sure, Tim.

Our next question comes from Ms. Barbara Allen of Arnold [INAUDIBLE]. You may ask your question.

Thank you. I was wondering if there any areas of the country where the asking land prices have gotten so far out of whack that you're not in the market currently.

Not really, Barbara. We are--they in fact continue to move in an upward direction. But I'd say in the markets that we're in right now, we're not seeing situations where we have to over pay to be in the market.

Well that's good news and congratulations. I appreciate your not making acquisitions where you are adding some good will to the balance sheet and keeping a very nice clean balance sheet is, I think, worthwhile. Thanks alot.

We agree with you. Thank you.

Once again to ask a question please press star 1. At this time there no further questions.

We would like to thank you again for joining our call today. We look forward to speaking with you again in January, following the announcement of our 2002 annual results. Have a good day, everyone. Thanks.