M/I Homes Inc (MHO) 2003 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the M/I Homes second quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during this conference call, please press star then zero on your touchtone telephone. I would now like to turn the conference over to your host Mr. Phil Creek, please go ahead sir.

Thank you. Thank you for joining us today. On our call from Columbus, Ohio, it's Irving Schottenstein, our CEO and Bob Schottenstein, our President. First to address regulation fair disclosure, we provided our earnings guidance in our press release. We encourage you to ask any questions regarding issues that you considered to be material during this call. Because as you know we are prohibited from discussing significant non-public items with you directly. As a forward-looking statement, please note the section in our press release regarding forward-looking statements and the Safe Harbor statement under Private Securities Litigation Reform Act of 1995, filed on our annual report on Form 10-K for the year ended 12/31/02. Also please be advised that certain statements in this call may constitute forward-looking statements within the meaning of this act and that actual results could differ materially from those described in such statements. We advise that the company undertakes no obligations to update any forward-looking statements made during this call. The audio, which will be available on our website through July 24, 2004. It should also be noted that certain information related to the use of non-GAAP financial measures required by SEC Regulation G is posted on our website. This information can be accessed by logging onto the M/I Homes website, clicking on investor relation and selecting non-GAAP financial disclosure reconciliation. Now I'll turn the call over to Bob Schottenstein.

Thanks Phil, and hello everyone. As set forth in our press release this morning, this was a fantastic quarter for M/I Homes. It was the best second quarter in the company's history. Our net income of 19.5m, which translates to $1.32 per share was not only the best second quarter income we've ever had, but it was the best quarter we've ever had for any quarter in our company's 27-year history. In addition our year-to-date net income of 37.4m is also the highest income level we've ever had during the first six months in this company's history. Numerous other records were set during the quarter and I'd like to highlight a few of them. Our new contracts for sales reached an all time high of 1343, which was up 24% from '02 second quarter. In the month of April, our sales were up 19% over a year ago. In May, they were up 28% over a year ago and in June they were up 27% over a year ago. New contracts were also strong for the entire first half, up 15% from '02's level. Our backlog also sits at a record level. As of June 30, '03, it stands at 3044 units with the sales value of $760m, again the highest levels ever attained in our company's history, representing a 17% increase in units from a year ago and a 22% increase in dollar value from a year ago. We delivered 961 Homes during the second quarter, down 8% from '02 second quarter. A number of reasons for this. Number one, we are on the heels of a very harsh winter. We've had an unusually wet spring in many of the markets we do business in, and this has been responsible for some of the delay in the closings. We've seen a slowness in some of the permitting process and another reason for the slight decline relates to back to our fourth quarter '02 sales, most of which would close during the first six months of this year and those sales levels as you may recall from prior calls were down slightly from the fourth quarter '01 sales. Nevertheless, we are confident that, that as the year moves on, we will be picking up closings at a pretty brisk space. Well, our community count is down slightly from a year ago. We think that there are several comments that could be made about this.

First of all, our land position is very strong. Many of the communities that where now beginning to open up or that we are working on are larger than a lot of the communities we've had in the past, which in some ways masks and this leads the total community count. At the same time, as stated in our press release, during the first half of '03, we purchased over $110m worth of ground, which represents a greater purchase than all of '02, and we have every confidence that this pace will continue for the balance of the year. We are fully cognizant of the importance of maintaining the strongest possible land position, and as of today our land position is the strongest it's ever been in the company's history. Just a brief word about cancellations. Our percentage was about 18% in the second quarter, slightly lower than a year ago when it was around 20%, and as previously reported, the vast majority, a significant high percentage of these cancellations occur within our entry-level product. Our entry-level product represents about 35 or so percent of our business and most of these cancellations occur or result rather from financing issues and also occur prior to commencement of construction. We are not and never have been a stack builder. We virtually build the contract. At the end of June, we had 105 specs in the entire company in various stages of construction compared to about a 100 a year ago. In terms of margins, our gross in operating margins for the period improved to 26% and 14% respectively which were the strongest margin levels we have ever experienced. Just to briefly review the markets. We had exceptional performance and expect to have record years in Columbus, Kampa, Orlando, West Palm Beach, Florida and Washington DC. Our performance in Cincinnati, Ohio, Indianapolis, Indiana was good, although our sales in both those markets are somewhat spotty, but nonetheless we've had good performance and expect to have a very strong year in Indianapolis and a good year at Cincinnati. And our business in Charlotte and Raleigh, North Carolina is a little bit spotty. But all in all are, just an outstanding quarter for the company and I am going to turn it back over to Phil, and if during the Q&A, there are any specific questions about any of the markets, we will be happy to answer on them.

Thanks Bob. Revenues decreased 7% for the quarter and 5% for the six months compared to the same period last year. Accounts delivered in the quarter were 961 compared to 1040. Accounts delivered for the first half were 1761 compared to 1886. Our backlog was slightly lower going into this year than the prior year. During 2003 we closed 41% of our year-end backlog during the second quarter and 76% of our year-end backlog during the first six months compared to last year's 45% and 81% and as Bob stated, unfavorable weather conditions along with a slower housing permit process were the main factors in our lower deliveries. We anticipate this turning around in the second half of the year primarily in the fourth quarter. Average selling price for the second quarter was 241,000, up from 236,000 from last year's second quarter and for the first six months, the average sales price was 239,000 versus 238,000 last year. Gross profit dollars increased 1.2m for the second quarter of '03 and 3.9m for the first six months, even with our deliveries down. And our margin percentage increased by 200 basis points for both the second quarter and the first six months of '03 to 26.4% for the second quarter and 26.7% for the first six months. We are very pleased with these very strong margins. Land gross profit on outside land sales increased by 400,000 for 2003 second quarter and by $2m for the first six months. This increase is primarily the result of lots sold in Phoenix as we wind up our exit from this market. We have had strong margins on our Phoenix lot sale and we currently are down to seven lots left to sell. Our G&A cost in 2003 second quarter decreased 1.6m to 5.7% of revenue from 6% of revenue in the prior year quarter. We always focus on controlling our cost. This particular dollar decrease came primarily from our lower insurance cost, we have had lower claims and we are self insured up to a certain level, and also our exit from the Phoenix market.

Selling expenses increased $100,000, an increase from 6.2% to 6.6% of revenue for the second quarter and this increase was due to higher co-op commissions. Selling expenses decreased $600,000 for the first six months of this year partially due to reduced home deliveries. Overall our SG&A expenses increased to 12.4 of revenue in the quarter and to 12.2 for the first six months compared to 12.1 for the second quarter and 11.8 for the first six months of '02. And as usual we always focus on our cost. this is demonstrated by the fact that SG&A dollars were down 1.5m for the second quarter and 1.1m for the first six months compared to the same period of '02. Operating income increased in the second quarter to a record 14% of revenue from 12.1% from '02 second quarter and to 14.5% of revenue for the first six months of '03 compared to 12.7 for last year and we are very pleased with these returns. As the expense decreased $2.1m for the second quarter and $3.4m for the first six months of '03, compared to last year. The decrease was primarily due to lower average borrowings offset in part by higher weighted average interest rates, due to our subordinated debt representing a greater portion of our debt outstanding in the prior year. Additionally, we have capitalized more interest during this quarter than in the prior year quarter. This is due to our higher amount of land under development this year than last. We have $13.1m in capitalized interest on our balance sheet in June 30, '03 compared to an 11.9% at June 30 of '02. This represents about 2% of our assets, and we continue to be very conservative in our capitalization policy. Expensing interest when [Inaudible] and when lots are finished. There has been no change to our policies. Our effective income tax rate for both the second quarter and the first six months of this year is 39% compared to 38% for the same periods of last year. The increase in this rate, reflects primarily an increase in state taxes, see a greater percentage of our profits being generated in a higher tax rate states.

Net income increased 16% to $19.5m for the second quarter, representing the highest of any quarter ever in the history of the company. The net income for the first six months also increased 14% to $37.4m for the first six months and also is the highest first half of any year. We are also very pleased to bring 8.3% to the bottom line on the year-to-date basis. Diluted earnings per share increased 21% to a $1.32 for the second quarter and 19% to 252 a share for the first six months of '03 compared to the same period as last year. Our mortgage company and tidal operation loans originated where 783 in the quarter particularly 7% from the 843 in last year. Loans originated at 14. 33 in the first six months, decreased 6% over the 15.29 from the prior period. 15% of our overall closings in 2003 second quarter were down payment assisted, compared to 19% in '02 second quarter and the average mortgage amount on these down payment assisted loans were consistent at a 172,000. Revenue for the second quarter was nearly $6m, an increase of 10% over the prior year's second quarter and for the first six months revenue was 5% higher than the prior year comparable period. These increase are primarily due to higher revenues from sales of servicing rights and marketing gains. The average loan amount originally had increased from a 184,000 to a 194,000 for the second quarter. And from182 to 192,000 for the first six months. Loan per value on our mortgages increased from 82% to 83% comparing the second quarter of last year and this year. And in the second quarter of this year, 72% of our loan for conventional was 28% [Inaudible] . We sell our mortgages along with the servicing rights. Our contingent re-purchase obligation due to loan delinquency is primarily limited to the first couple of payments being made timely and year-to-date, we have not repurchased any loan. Pre-tax income in 2003 increased 14% and 5% for the second quarter and first six months respectively compared to the same period in the prior year as a result of increased revenues. And our mortgage operations continues to capture about 90% of our business. Overall, our mortgage and title business has produced 12% of our operating income during the second quarter of '03 and also of last year. On the balance sheet, we're focused constantly on our land investment. In our April conference call, we stated that we intended to buy over $200m of land this year, and as Bob mentioned we have already purchased $110m through June of this year. We are working very hard on getting additional quality sub-divisions open. June 30, 2003, home building inventories increased 13% over the last year and increased 20% from year-end. Compared to a year ago, raw land has increased 36%; land under-development increased 36% and finished unsold lot decreased by 15%. And these increases were in line with our expectations.

Our backlog units are at 17%, backlog sales value is at 22% and our backlog value of $760m an average surplus of $250,000 a record, all time company records. We had 10,500 loss on our book as of June 30, 2003, of which about 3900 or either under development or finished. We have an additional 8900 lots under control. In total today, we own a two-year supply and control about a four-year supply of lot for a total under control of 19,400 and this is about 3500 more lots than a year ago. We felt very good about the quality and quantity of our land positions. As we've just talked about land, I want to address the much discussed financial interpretation 46, which is consolidation at variable interest entities - 1046 we along with our external auditors have performed a comprehensive evaluation of all of our land contracts entered into after January 31, 2003 including performing a relevant 1046 cash flow analysis when necessary. Based on our interpretation of 1046, and our cash flow analysis and working with our external auditors, we have completed a consolidation it is not required because in each case we are not the primary beneficiary of the entity that we have contracted with. We will evaluate contracts that exists prior to January 31, 2003 prior to the next quarter and we will make a determination relative to these and any other contracts during that time. In addition to our law option contracts, we have also evaluated our existing joint ventures. And as determined in accordance with 1046, that we are not the primary beneficiary of these ventures and therefore consolidation is not required. In the second quarter of 2003, we did not repurchase any outstanding shares, we have 3.2m shares in treasury as of June 30 of '03 at an average price of $14. We have $34m available to repurchase shares under our current Board approval. Equity was 367m, at June 30, 2003 with book value per share over $25. And from our financing standpoint, we have $315m line of credit with $82m being borrowed at quarter end. Bank One continues to be our lead bank with 12 banks in our line. Our line expires in 2006. We currently estimate our peak 2003 ongoing borrowing under this line of credit to be about a 140m leaving almost $200m available. Long-term debt at June 30 totaled to 163m compared to 91m at year-end of '02 and a 157m at June 30, 2002. And all period (Ph) saved 15m of sub-debt that matures in 2006, the third quarter. Home building debt to equity was 39% June 30, 2003 versus 46% a year ago. In home building debt to capital was 28%, June 30, 2003 versus 31% a year ago. Our interest coverage for the quarter remained very strong at 11 times EBITDA. EBITDA for the quarter was 33.9m, a record for us. Interest incurred for the quarter was 3m compared to 3.4m in '02, second quarter. In summary, we are very pleased with our financial performance and our financial position has never been stronger. Based on our result so far and a record quarter in backlog, we anticipate that 2003 would be another year of outstanding results and our eighth consecutive record year. We currently estimate deluded EPS of the 2505 and 520 for the year, an increase to our previously forecasted amount of 475 to 490 per share and an increase over 2002's record of $4.30. This completes our formal presentation. We'll now open the call for any questions or comments.

Ladies and gentlemen, if you do have a question at this time, please press the 1 key on your touch-tone telephone. If your question has been answered or you wish to withdraw yourself from the queue, please press the pound key. Once again if you have a question at this time, please press the 1 key now. One moment for the questions. The first question is from Ivy Zelman of CS First Boston. Please go ahead.

Good afternoon, guys. It's Ivy. I was wondering if you guys could elaborate a little on the margin expansion, how is this second straight quarter, where we've kind of come pretty far ahead of expectations and I think you had attributed it to some more options last quarter. Is that the case and how can well I guess not your choice, what the main driver is there?

I think it's never quite a lot of things, it's never one thing. I think part of it to be sure is, the fact that buyers, given the current rate environment and so forth to buy more options, but I don't want to minimize the importance of land position and security locations and particularly exclusivity. We have a number of communities where we are in those communities with other, in many cases national builders, but we have also a very, in increasing number of communities where we are the exclusive builder and in those communities where we have that exclusivity, we have seen not always but in many cases the opportunity for us to really drive the margins and to create a neighborhood, the MI way. And through focusing and managing, communities buy margin and providing the kind of product and sub-division appearance, street scape, there's just so many things that go into it but we've really pushed, and pushed and pushed, hasn't slowed sales down. Our sales have been very brisk and in the face of that we continue to raise prices. I think my senses is that margin expansion is being enjoyed by a lot of the home-building community that once again I think our results are clearly in the upper tier and I think it's the result of a lot of factors that I have to believe that one of the most significant is the quality locations, the exclusivity within communities, the product offering, the management of the margins through features, benefits and just enhanced community appeal.

Well, this is a pricing issue, it is not necessarily that you have land either you're paying cheaply or is older than in the past?

I think, we - if you go back over the years and if you look at our land possessions and so forth and what our running out of land that we bought eight years ago that we paid under today's prices $0.10. I think it is all about the ability to compete favorably in the market today. It's not distorted by some discomforts of ground.

Is this the kind of mix that we should expect going forward or are you nearing the end of some of these communities for you have had such an exclusive position?

Look, I mean, no body knows what the future will bring but if business continues to stay in or about where it is, we are very confident in our product offering. We, from time to time, we get a lot of questions about why is your sub division count about the same or why is it down slightly and so forth. I mean our sales are significantly ahead of a year ago, it is not about how many communities you have, it is about the quality of the communities and we feel very confident there and now are they sustainable at this level? That's a hard question to answer. In over the past several quarterly calls, we ourselves have questioned how sustainable they are but one thing I think is sustainable, I think M/I will continue to be because we've it for many years near the talk of the home building sector when it comes to margins. I think we've had - we've been always been a builder that has been known for having high margins and that's part of our operating philosophy and so I think in that respect we'll always be in the upper tier.

Is it safe to say that these communities and the areas you are enjoying the most pricing powers in Columbus and in the Ford market?

It's in Columbus, Ford, and Washington, right now and that's absolutely correct.

Okay, Touching on you had mentioned your FHA/BA buyers represent roughly about 28%, is that the right number Phil at this quarter?

Yes, in the [Inaudible] side.

And I think that's down from maybe the mid 30s and previously we've discussed this and it was may be over 40%. There is something that you are concentrating on decreasing or there are other factors that or maybe you're just producing higher price products now that don't feel to the FHA. What's driving that down?

If is a little bit about [Inaudible] sales price and backlog, right now 250 is the highest it has ever been and even though that's government loan limit increase periodically, actually really more with the mix. Also that's effected somewhat by just the mortgage product in general, what's rates - where they are but it is nothing that we really focused on one way or another that much.

If you guys follow what is the biggest - behind the product that you get turned it off away and then force to cancel it with previous orders?

The biggest region for our cancellations are financing and as Bob stated the biggest majority of those are canceled prior to starting the houses, that's the biggest reason.

And the biggest majority of those occur when our entry line of houses, which is about a little over a third of our business.

Okay, I was more focused on what exactly was causing the financing to be declined but that's not a big issue. I think that's it for now gentlemen. I appreciate it.

And thanks a lot.

Thank you.

The next question is from the line of Steve Ricoco (ph) of Large Research (ph) . Please go ahead.

Thank you. Bob, you mentioned that the margin expansion was due to being able to price your product better effectively, if I could paraphrase there, that because of the exclusive locations.

In part that is a big reason for it. Yes.

I guess that would imply, I am surprised that your average price only increased about 2% along with it. I mean, if it seems to me that a fair amount of this would have to be cost-driven, given the relatively modest increase in average price. The lumber has been going up, the original cost factors going up.

Right the ST, - the plywood board OHP board prices have gone up tremendously. We have seen an lumber pricing.

That with lower margins, still right?

Right.

The overall margins are up.

The overall margins are up. So, I mean, I think if some of these things have - it may be I am not understanding your question, Steve.

Well, I guess, with that big of an increase in margins and with your statement that you are able to price more aggressively because of your land positions, I would have expected to see - I mean that's a factor enclosing, I mean I can appreciate that the average price in backlog is up. But those haven't cycled through yet into the income statement. What's gone through the income statement is average price increase from say 236 to what 240, this quarter, which is only 2%. And I would have thought that the - to show the type of margin increase that you have shown overall, that you would have to show a much bigger increase in price to get there. Either that or you would have to be generating that the margin increments through lower costs?

Well, I don't know if this helps to answer the question either but sometime it's a question of mix. We were ratcheting out of Phoenix. I don't think we had many houses in Phoenix last year at this time. But those were all $1m homes, which are now gone from the equation. There were probably a few that were still leaking through the system last year at this time. We had a number of communities in the Washington market, where we had a number of closings with very high prices that as communities have closed up and others have opened, even though we still have relatively a high average price in Washington, some of our more higher priced communities have closed out of there, we're not in there, and we were a year ago. So, I think when you look at the total mix, it's just shaken out that way, I don't know if there is any other way to answer that.

Well, that means I guess the other was the mixed issue, I would have expected to see, say, I mean you could say if the - if you're getting the pricing on lower cost houses, then I would have expected that mix of conventional FHA & VA loans would have gone up not go down, you know what I'm saying. I mean, its hard to figure out exactly why, I mean if it's not cost related, given everything else that's going on.

All I know is this is in its - it's not in every city. There are three-floater markets, the Washington market, Columbus, and a few select sub-divisions in some of our other cities. We have a number of locations, I mean it's a sub-division business when you really drill down. We have a number of locations where we are getting phenomenally high margins, which are helping produce, these results and in most of those, it's no coincidence, it's where we've got exclusivity or niche kind of product. So, that's our view of what is contributing to much of it, it's not all of it, certainly the optioning has something to do with it and so forth as I said before.

But in those areas where you're getting exclusivity, you're not necessarily getting lots that are cheaper.

No, no. I mean I don't think it's got anything to do with the lot price, its position and product.

Okay. Let me move on to something else. Could you talk a little bit about your land purchases, I mean you said 110m so far, 200m this year, where, what type of land parcels are you going for? What do you think that this will do to your land position by the end of the year and how will that position you going forward?

First of all, in terms of our land acquisition philosophy, it hasn't changed. We are buying ground that's entitled; we are buying ground that is usable for basically what our operation is. By that I mean about 35%, 40% first time home buyer, another 50% for second move up and so forth. So it has to sort of fit our recipe if you will, in some cases the tracks are a little bit larger than they have been historically, in other cases with the advent of some product that we have recently introduced where we are having exclusivity in some of the communities and selling two and three different product lines all of - all of which are M/I product only, that one community becomes like two or three and we are seeing probably a few more communities like that. But. ....

Are they evenly spread across your markets? Are you concentrating in any particular areas?

I think they are fairly evenly spread, I mean just a - our land position, we have experienced tremendous sales in Tampa, and our land position there about a year ago was clearly needed to be shot up, and we have taken steps to do that. We have got strong land acquisitions throughout Florida, certainly a lot of acquisitions in Washington and they are pretty spread out. I don't think you could say that there is any emphasis in any one place. The cities - we said is in our annual report, and we said it during a number of calls, are Columbus, Tampa, Orlando, Washington, and Charlotte markets, although Charlotte was behind in our planning, are markets that we have really geared to try to grow, and as a result, in some cases, a lot of the land is being purchased in those markets, but they are all there cross the board.

So the number of years of land effectively that you have will be [Inaudible] ? Would you say?

The goal is still to have, you know a three, four, you know, maybe in some cases five-year supply that on average a three to four year supply in each market. And also Steve from our standpoint, you know, we are trying very hard, like we said they get more quality sub-divisions open. We would like to get our subdivision account up into the 150 to 155 range. Also, we would like to continue to increase the numbers of homes delivered, so hopefully we would be able to get that number up also.

Okay. Will this have a potentially negative effect on your margins?

We believe that these purchases are clearly in the best interest of the company from a growth standpoint, from an earnings standpoint, and hopefully from a margins standpoint, that's the bet. So time will tell. We are with the operating philosophy that was - it was used to buy the ground, that we are closing houses on today, applies to the land that we are buying now, so the proof will be in the pudding, but we are confident. When we say our land position has never been stronger, that's based on what we ultimately believe we will be selling on the parcels we are buying now.

I just have a couple of more questions. One, your order rate picked up dramatically this quarter, I mean it has been trending out, but 25% or 24% year-over-year growth is far above anything that you have shown for quite some time. What explains that?

I think it was a couple of factors; I think that we had a fair amount of bad weather in the first quarter. Also, we have had, as Bob mentioned, a couple of new subdivisions opened. We've had some very, very good communities open in Columbus, and our sales there have been very, very strong. Our sales also have been very strong in Orlando, where we have a larger community, where we have multiple price point, has done very, very well. Our Palm Beach, where we talked about the past being down in community count, we got a couple of communities open, Palm Beach has been very, very strong also.

Tampa as well, our sales in Tampa has been phenomenal, you know the opening of a number of communities, there has just been explosive sales pace there.

You have indicated that the percentage increase was fairly uniform, actually picked up there in the course of the quarter from months and months. Mortgage rates have checked up now, close to 6%, there's been a lot going on with the GSEs. Is that affecting the rates that you're able to offer people, and has that had any impact so far on traffic orders?

Doesn't appear to. The other thing I want to say Steve is, our sales aren't strong in every market. And as I said, this business has been a little spotty in [Inaudible] and Cincinnati, has been up and down, Indianapolis is so-so. It's not bad, so to answer your question about rates, we haven't seen any change yet. And from a traffic standpoint Steve, April's traffic was actually up 11%, May's traffic was up 4, and June's traffic was up 11. So our traffic did improve in the quarter.

But the orders improves a lot more than the traffic - at the conversion rate.

The orders were up 19, 28 and 27.

Yes.

Quality of traffic is down, and hopefully our sales people are doing a better job, that is something we give a lot of attention to. But it's hard to know that sometimes this quickly.

Yes. You are not seeing any impact with mortgage rates, the economy, that type of stuff at this point?

Our business continues to be strong.

Thank you.

Thanks a lot Steve.

As a reminder, If you do have a question, please press the one key now. The next question is a follow-up question from the line of Ivy Zelman. Please go ahead.

Hi, I won't keep you guys too much longer, just a couple of follow-up on some numbers you gave earlier. The traffic you just mentioned, was that 4, 7, or 11?

The traffic for April was down 11%, May was up 4%, and June was up 11%.

Down 11, up 4, up 11?

That's right.

Okay. And is that type of - level of traffic in the orders you mentioned earlier continuing into July?

We don't have any comment on July, we will be announcing those orders about 10 days after quarter ends.

Okay, you are doing [Inaudible] monthly orders now?

We do quarterly, 10 days after quarter ends.

And the last number that was 10-5 owned and 8,900 controls [Inaudible] ?

That's correct.

From our land's stand point, we actually own 10-5 and we have 8,900 off the books, a total of 19,400.

Okay, and the revolver you mentioned you currently have outstanding 82?

At the end of the quarter, we are 82m outstanding of the [Inaudible] .

And you expect that to peak out at 140?

140.

Probably next quarter it would peak?

Probably September.

September, okay.

Okay. And the last thing, how many orders did you guys have last June, Phoenix, I think that might have been in the last quarter?

In Phoenix, last year second quarter.

Yeah.

Two

Okay, they came back there. And the cash on your book?

The cash on my book. I have to give you a call back on that. It's not a whole lot.

Okay under [Inaudible] ?

I think that would be a good number.

Okay. All right thank you very much guys.

Thanks a lot.

If there are any further questions please press the one key now. I am sure there are no further questions in queue at this time.

Thank you very much for joining us. We look forward to talking to you next quarter.

Ladies and gentlemen that does conclude your conference for today. We thank you for your participation. You may disconnect at this time.