M/I Homes Inc (MHO) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the M/I homes M/I Homes year-end conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Phillip Creek. Sir, you may begin.

Thank you very much for joining us today. Joining me on the call is Robert Schottenstein, our CEO and and President, and Stephen Schottenstein, Our Chief Operating Officer.

First, to address regulation fair disclosure, we encourage you to ask any questions regarding issues that you consider to be material during this call because, as you know, we are prohibited from discussing significant nonpublic information with you directly.

We provided our 2005 annual earnings guidance in our press release, and as to forward-looking statements, this presentation includes forward-looking statements as characterized in the Private Securities Litigation Reform Act of 1995. Any statements that are not historical in nature are forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Please refer to our most recent 10-K, 10-Q, and earnings press release for other factors that could cause results to differ. Be advised that the Company undertakes no obligation to update any forward-looking statements made during this call, the audio of which will be available on our website through February 2006.

As noted in our press release, certain 2003 information has been reclassified to conform to 2004's presentation. 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 at www.M/Ihomes.com, clicking on the Investor Relations section of the site, and selecting non-GAAP financial information reconciliation. Now, I will turn the call over to Bob.

Thanks, Phil. Good afternoon, everyone, and thanks for joining us. 2004 was a great year for M/I Homes. It was our 9th consecutive record year, where we produce records in pretax income, diluted earnings per share, record year-end backlog, and a number of other highlights that we're going to take a few minutes to talk about with you. From a customer service and satisfaction standpoint, we achieved -- for the first time -- a 100-percent approval rating from our homeowners. We've had an over 95-percent homeowner approval rating for 14 consecutive years. This is the first time we ever hit 100 percent. We believe that rating level to be unmatched in our industry, and it is something we're very proud of.

Certainly, we did face some challenges in 2004. The much well-documented softness in the Midwest housing economy, which I will talk about at some length in my remarks, the unusually severe weather conditions in Florida -- most notably the 4 hurricanes that occurred in late summer and fall -- and the continued regulatory delays and protracted governmental approval process that we -- along with most other builders -- encounter that has further slowed down the land development community opening and homebuilding process.

In spite of all that, though, it was a record year for the Company and, as I said, our 9th consecutive record year. Homes delivered in 2004's fourth quarter were 1200, which was a 10 percent decrease from 2003's level. That decrease was primarily due to a softness in the Midwest and also delays caused by the Florida hurricanes. For the year, however, our closings or homes delivered reached a record high of 4303 homes, which was a 4-percent increase over 2003.

We also saw, in 2004, record gross margins and record operating margins, both improving 50 basis points from their previous record levels of 2003. Specifically, our gross margins reached 25.5 percent, and our annual operating margins improved to 13.6 percent.

For the year, sales or new contracts were 4333, a 3-percent decrease from 2003's record level of 4485. New contracts for 2004's fourth quarter, however, represented a 5-percent increase over the amount of homes sold in the fourth quarter of '03 -- this despite a lower community count and despite the fact that we were unable to open a number of communities because of the issues I previously mentioned in Florida and in the Midwest.

Our sales were up 4 percent in October, up 11 percent in November, and essentially flat in December, which produced the uptick in sales in the fourth quarter. New contracts or sales in the fourth quarter for our Midwestern markets -- Columbus, Cincinnati, and Indianapolis -- increased 6 percent over 2003. This increase was in the face of softening market conditions. We believe the primary reason for the increase was the fact that we were able to open a number of new communities late in the year, though we had hoped to open them earlier in calendar year '04. But the fact that we could get them open late in the year did contribute to increased selling.

As mentioned in our press release this morning, we anticipate new contracts to be down for the first quarter of '05. In fact, as expected -- or I should say as budgeted internally, our January '05 new contracts were down 20 percent from January of '04. January of '04 was a record month for our Company. We do, however -- and this is very important -- while we would rather report sales up every month for every year, we do look at this business over the long haul, and we fully expect, as we have stated in this morning's press release and in press releases issued during the latter half of last year, that we will increase our sales units in calendar year '05 by approximately 15 percent over 2004's level, which would represent a record achievement for M/I Homes.

The key to our sales growth, among other things, will be the opening up of new communities. And for reasons which I have mentioned, this has been an area where we are not where we would like to be, although the good news is that we will be there sooner than later. Our community count stood at 125 communities at the end of '04, versus 135 communities at the end of '03 -- below levels we had expected. We currently estimate, however, that our community account, as we get our new communities open, will begin to significantly increase in midyear, and most of that will be occurring in the third and fourth quarters. And by year end we should be running at close to 6 cylinders, with approximately 150 active communities operating by the end of '05. That will be a major contributor to what will be a very strong second half of the year for M/I Homes.

Cancellation percentage in the fourth quarter of '04 was 22 percent, down from 26 percent in the fourth quarter of '03. At the risk of repeating ourselves, as you know, if you follow our Company, most of our cancellations occur within our entry-level product. Most of our cancellations result from financing issues, and most of our cancellations occur prior to commencement of construction. M/I Homes has never been and is not a spec builder. While our speck inventory has increased slightly -- underscore the word slightly. At the end of the year, we had 213 specs in various stages of construction, comprising approximately a $28 million investment, less than 5 percent of our business, one of the lowest spec levels in the homebuilding industry.

Our backlog at December 31, '04 reached a record level of 2688 units, representing a 14-percent increase in sales dollar value to $800 million at year end. This was the highest in our 28-year history. The average selling price of a home in backlog at year end stood at $298,000, compared with $265,000 per house at year end '03. Finally, in '04 -- and perhaps most significantly -- we're very proud to announce that we significantly enhanced and, we believe, importantly diversified our land position as planned -- purchasing in excess of $207 million worth of ground in calendar year '04, with over 65 percent of our purchases occurring outside of our 3 Midwestern markets. This is the platform that will our Company to achieve the 15-percent unit growth projections that we have planned to achieve in '05, '06, and beyond.

In terms of '05, before I turn this back over to Phil, who will much more specifically review our numbers, I want to talk a little about calendar year '05 and then some of our particular market conditions. We started 2005 on a great note. At the International Builder Show in Orlando, M/I Homes won a first-place Gold Award in the face of over 1000 entrants and two second-place Silver Awards in the national competition, sponsored by the National Sales and Marketing Council. The first-place Gold Award was for a 30-second TV spot, which we've run in a number of our markets, and the 2 Silver Awards were for direct-mail and best advertising campaigns. I think that speaks well for the quality of our Company and the quality of our operation.

In terms of revenue and units, if you look at our company over the last 3 to 5 years, you will note that our units have been hovering in the low 4000s and have not grown significantly. On the other hand, our profits and financial strength have greatly improved, largely on the back of an increasing average selling price and margin expansion. And this profit growth and improved financial strength has allowed our Company to position itself where we are today, which is in a growth mode.

During the past year, we publicly stated, on several occasions, and reiterate now that our target is to increase sales unit growth in 2005 and in 2006 by approximately 15 percent in each year. We are well positioned to do so and, as a result, fully expect calendar year 2005 to be the 10th consecutive record year for M/I Homes.

We talked a little bit about our '04 land purchases reaching a record level of slightly over 270 million, with over two-thirds of those purchases occurring outside the Midwest, and that theme will continue in '05. This year, we plan to buy approximately 3340 -- that's $340 million worth of ground -- with about half of those purchases occurring in our 3 Florida markets. 35 percent will occur in our Washington, D.C. and North Carolina markets, and the remaining 15 percent will be in the Midwest. This is a planned diversification, in part, recognizing the softness in the Midwestern markets but also, and, frankly, in our case, more significantly, because we have felt for a number of years now that there was excellent growth opportunity for M/I homes in Florida, Washington, and in North Carolina.

We've significantly grown our Florida markets. We haven't just sat back and talked about it. During the past several years, we've improved our land position tremendously and have seen the fruits of that effort in Tampa, Orlando, and our Palm, Beach division. In 2004, we closed approximately 1000 homes in our 3 Florida markets. Our year-end backlog is higher than it was a year ago, and we fully expect and, frankly, will be disappointed if we don't close approximately 15 homes in Florida this year. And we expect additional growth in 2006. We expect to double our community count in Florida through the year, and our margins and returns in Florida are very strong.

We are equally pleased with our Washington D.C. operation. Like Florida, it produces some of our best margins and profits. Our unit closings in the Washington market will double between calendar year '04 and calendar year '06. We purchased over $50 million worth of ground in the Washington market in '04. We plan to purchase in excess of $70 million worth of ground in '05, and this bodes very well for M/I Homes in '05 and in the future.

We've also indicated to you in the past that as it relates to North Carolina, M/I Homes has seen itself struggle somewhat in our Charlotte and Raleigh divisions, but we have talked about how we're taking steps, slowly but surely, to reposition and improve ourselves. We feel and are happy to report that we have begun to make some real progress, making critical land deals that will be the foundation for further planned growth in these markets. Overall, taken together, if you look at our Washington market and our 2 North Carolina markets, Charlotte and Raleigh, we expect to see significant closing growth in '05, '06, and beyond and a significant improvement in community count across all 3 divisions.

In 2005, 50 percent of our closings will occur outside of our 3 Midwestern markets, compared with only 35 percent of our closings occurring outside of the Midwest in '04. Basically, we feel very good and are confident about our plan for '05. We recognize that there are challenges. As we mentioned in our press release, due to the reasons that were mentioned there with lower year-end community count, late-year weather issues -- frankly, severe weather conditions in a number of our markets in December -- that we anticipate that our first half of '05 homes closings and income will be below last year's record level, although we still expect them to be at a very strong pace.

We do anticipate, however, that the second half of '05 will strongly surpass '04's second half, and that is the basis for our belief -- that '05 will be our 10th consecutive record year. Patience, however, is a virtue, and those that see the results of our efforts through the year, I believe, will be very pleased with M/I Homes' performance in '05, as you have been in the past.

Let me just take a minute to talk about our markets individually and then, Phil, I will turn it back over to you. Columbus, Ohio had a record year in '04, but Columbus will not have a record year '05 due to the challenging conditions in the Midwest. Our sales were down about 15 percent from calendar year '03, and although our business is still good, it's just not excellent. And frankly, we expect our business in Columbus in calendar year '05 to be the second-best year we've ever had, although it will not be as good, as I said, as '04.

Cincinnati -- we had strong sales in the fourth quarter. We don't do near the volume in Cincinnati that we do in Columbus. So, as a result, the slowdown in the Midwest has not been as acute for us in Cincinnati as it has been in Columbus. But our sales in the fourth quarter were up over 50 percent from last year. We closed about an equal number of homes in '04 as we did in '03. We expect to close more homes in 2005. We expect to have a record year in Cincinnati in '05. It won't be significantly better than '04, but it will be slightly better, and it will help us achieve the results we need to achieve companywide.

Indianapolis -- like Columbus -- a very spotty economy, uneven market conditions, weak job growth, uneven demand for housing. We delivered approximately 270 homes in Indianapolis in '04 -- expect to ramp up slightly in '05 -- and income from '04 to '05 to be relatively flat, perhaps even down, given certain margin challenges that we face in the Indianapolis market.

Florida -- our 3 Florida markets, at the risk of repeating myself to many times -- Tampa, Orlando, and Palm Beach -- very strong margins, very strong sales, very strong operations, and very good land position. I've talked about how our closings will increase significantly. We are surging in excess of 700 homes in Tampa this year and hope to be pushing between 900 and 1,000 homes by the end of '06.

Orlando's business is growing tremendously as well. It should grow a minimum of 25 to 30 percent from '05 over '04. We plan to deliver well over 500 homes in Orlando this year and Palm Beach's unit delivery should double from '04 to '05.

Charlotte and Raleigh I spoke of as well. There is light at the end of the tunnel. We see a lot of good things happening there -- significantly improved land position, the results of which will not meaningfully contribute to profits this year but will very meaningfully contribute to profits in '06 and beyond. Finally, Washington D.C. -- we plan to increase our closings in that market by almost 40 percent from '05 over '04's level, with a light increase from '05 to '06 -- strong margins, very excellent returns. And with that, Phil, I will turn it over to you.

Thanks, Bob. Just a couple of other operating items before we get into the numbers. As far as our detailed sales for the quarter, as Bob said, our sales were up 4 percent in October. I want to give you the traffic. The traffic was down 12 percent in October. Our sales were up 11 percent in November, while our traffic was down 9 percent, and our sales were flat in December, with traffic down 16 percent. One other item, as far as Florida -- Bob mentioned that we closed about 1000 homes in Florida in '04. Our year-end backlog was higher than 1000, and our current expectation for '05 is to deliver about 1500 homes.

As far as the financial results, our revenue decreased slightly in the fourth quarter, compared to 2003's all-time record-quarter increase to 1.2 billion or 10 percent for the year, compared to the same period in '03. Homes delivered in 2004's fourth quarter were 1200, compared to 1339 for 2003's record setting fourth quarter. And as discussed during our third-quarter conference call, we expected our fourth quarter deliveries to be lower than 2003. Homes delivered in 2004 were a record 4303, compared to 4148 for 2003, and this is a 4-percent increase in units delivered for the year.

The average sales price for the fourth quarter was 282,000, up from 255 for last year's fourth quarter, and for the 12 months, the average sale price was 264 versus 246,000 last year. Gross profit dollars decreased 1.3 million in the fourth quarter of '04 and increased 32.1 million for the year over 2003. Our outside land sales gross profit was 903,000 in 2004's fourth quarter, compared to 322,000 in last year's fourth quarter. And this increase came primarily from sales in our Washington D.C. marketplace. Year-to-date, we have had 1.8 million of outside land sales, versus 4.7 million last year. Decrease in land sale profit in the prior year is largely due to our exiting the Phoenix market in '03.

Despite increases in warranty costs and inclusion of costs associated with the Florida hurricanes, gross margins for the year were 25.5 percent, representing a record high. Our gross margins have been very strong in our 3 Florida markets and Washington D.C.. Our G&A cost in 2004's fourth quarter increased 665,000 and, as a percent of revenue, increased 20 basis points to 5.4 percent for the quarter from a year ago. Our G&A costs increased 6.4 million for '04 but remained steady at 5.5 as a percent of revenue.

The dollar increase is the result of these changes -- associated with the early prepayment of our subordinated debt in the third quarter, increased incentive-related costs due to our record results, and increased professional fees, resulting from the implementation of programs that are now required of public companies. These expenses were offset, in part, by having lower costs related to our fewer opened communities.

Selling expenses for the quarter decreased 647,000, and as a percent of revenue, selling expenses decreased 10 basis points to 6.1 percent. Selling expenses for 2004 increased 5.9 million, compared to '03 but decreased slightly as a percent of revenue to 6.3 percent from 6.4. Co-op and sales commissions accounted for approximately 5.7 million of the increase, with the remainder primarily due to increased spending on media on sales efforts in the Midwest.

Overall, our SG&A expense was even at 11.4 percent of revenue in the fourth quarter and 11.9 percent of revenue four '04, which is essentially flat when compared to the same periods in '03. Our operating income in the fourth quarter of '04 was 12.1 percent of revenue, compared to 12.5 percent in '03, and increased to 13.6 percent of revenue for the 12 months ending December 31, '04 from 13.1 percent for the comparable period in 2003. We're very pleased with these returns. Our interest expense decreased 423,000 for the quarter and increased 3.5 million for the year, compared to the same periods in '03.

The fourth-quarter decline was primarily due to higher capitalized interest, as a lower weighted-average interest rate was offset by higher average borrowings. And the annual increase was a result of increased average borrowings and lower capitalized interest, which was offset, in part, by a lower weighted-average interest rate. We had significantly more raw ground this year than last, and we do not capitalize interest on raw ground. We had 15.3 million in capitalized interest on our balance sheet at 12/31/04, compared to 14.1 million at last year end. This is about 2 percent of total assets, and we continue to be very conservative in our capitalization policy, expensing interest when land is raw and when lots are finished.

Our effective income tax rate for both the fourth quarter and the year was 39.5, and for the fourth quarter, net income was 24.5 million, down 2 percent from last year's 25 million. Net income for the year reached a record 91.5 million, increasing 12 percent over 2003 and represents the highest in our history. Diluted earnings per share for the fourth quarter of $1.70 increased slightly over 2003's $1.69, benefiting from lower diluted shares outstanding. Diluted earnings per share for the year reached a record $6.35, increasing 15 percent over last year's 551. This 635 record performance is a slightly higher than the 615 to 630 guidance that we provided in our October 2004 call. We're very pleased to deliver this record high year of diluted earnings per share to our shareholders.

M/I Financial, which include our title operation -- our mortgage and title operations' pretax income decreased from 4.8 million in 2003's fourth quarter to 3.6 million in the same period of '04. This change occurred primarily because of increased expenses for the quarter, relating to higher incentive-related costs, based on our mortgage operation's record performance and also increased spending in our Midwest markets to aid our sales efforts. Additionally, a shift in closed-loan mix, from fixed-rate to adjustable-rate product, led to a slight decline in revenue, as adjustable-rate products generally receive lower margin than fixed-rate products.

For the year, our mortgage title operations produced a record 21.6 million of pretax income. Loan to value on our first mortgages for the year was 84 percent, compared to 87 percent in 2003, and for the year, 83 percent of our loans were conventional, with 17 percent being FHA/VA. This compares to 68 percent and 32 percent respectively for 2003's same period. The FHA maximum mortgage limits in the markets that we operate in range from 173,000 in Florida and North Carolina to 313,000 in Virginia. Also, approximately 53 percent of our fourth-quarter closings were adjustable-rate mortgages. This compares to 29 percent in the fourth quarter of 2003. 57 percent of our fourth-quarter applications were adjustable-rate mortgages, compared to the third quarter's 46 percent. Of our mortgages closed during the fourth quarter, 32 percent were interest-only loans, and this compares to 26 percent in 2004's third quarter. Overall, our average first mortgage amount was 200-5000 in 2004's fourth quarter.

The average credit score on mortgages originated by M/I Financial was 721 in the fourth quarter of '04, compared to 718 in the third quarter. This compares to 708 in last year's fourth quarter and 707 in '03's third quarter. The percentage of customers that receive down payment assistance in the fourth quarter decreased to 7 percent, versus 17 percent in '03. And in the fourth quarter, the average mortgage balance on these downpayment-assisted originations was 173,000, compared to 170,000 last year. The majority of these customers are in our Columbus and Indianapolis markets that buy our entry-level products. We sell our mortgages, along with our servicing rights. Our contingent repurchase obligation due to loan delinquency is primarily limited to the first couple of payments being made timely. And in 2004 we did not repurchase any loans. Our mortgage operation captured about 85 percent of our business in the fourth quarter, a decline when compared to last year's 87 percent. We believe this decline is due to increased competition as the mortgage business, overall, is slowing. We constantly focus on our capture rate, as M/I Financial only serves M/I Homes' customers. Overall, our mortgage and title business produced 8.8 percent of total operating income during the fourth quarter and 13.8 percent for the year.

Now, on the balance sheet, our homebuilding inventories at year-end increased 35 percent over last year, due to higher backlog levels and our land activities. Compared to a year ago, raw land increased 88 percent. Land underdevelopment increased 11 percent, and finished unsold lots increased 29 percent. At December 31, 2004, we had 268 million of raw land, 79 million of land underdevelopment, and 155 million of finished unsold lots. Our total unsold land investment at 12/31/04 is 502 million, which compares to 334 million at last year end.

We constantly focus on these land investments. As Bob mentioned, we purchased 270 million of land in '04, and the 2004 breakdown of those investments by region was 34 percent in Ohio and Indiana, 39 percent in Florida, and 27 percent in North Carolina and D.C. Today, we own 15,800 lots and have an additional 13,900 lots under our control. So, in total, we own a 3-year supply and control about a 6-year supply of lots for a total under control of 29,700. This is about 6600 more lots than we had a year ago. The breakdown by region of our total lots under control is 14,400 and the Midwest, 10,800 in Florida, and 4500 in Washington D.C. and North Carolina. Also, as Bob mentioned, we plan on having approximately 150 communities opened by year end. This projected breakdown by region is 85 in the Midwest, which compares to date 83, 33 communities in Florida from our current 22, and 32 communities in North Carolina and D.C., which compares to today's 20. This represents a 20- percent increase from today's levels.

As previously announced, during the third quarter of '04, we entered into a new $500 million line of credit, with an accordion feature that could increase availability to 750 million. We also repaid 50 million of subordinated debt, and we took these actions to support our growth plans. J.P. Morgan continues to be our lead bank, with 15 banks in our line, and our line expires in 2008. We had 279 million borrowed at the end of the quarter.

Long-term debt at December 31, '04 totaled 317 million, compared to 180 million at 12/31/03, and homebuilding debt-to-cap was 37 percent, versus 28 percent a year ago. In 2004's fourth quarter, our total average borrowings were 292 million, compared to 2003's fourth-quarter average of 174. And our interest coverage for the quarter remained very strong at 11 times EBITDA. EBITDA for the quarter was 44.6 million, which was a fourth-quarter record for us. Interest incurred for the quarter was 3.1 million, compared to 3.3 million in 2003's fourth quarter. Our average borrowing rate, overall, was 4.2 percent in 2004's fourth quarter, compared to 2003's 7.6.

Our year-end equity was 488 million, with a book value per share of over $34, and in 2004, we repurchased 299,400 shares of treasury stock at an average price of $38. We did not repurchase any stock in 2004's fourth quarter. At year end, we had 3.4 million shares in treasury at an average price of $17, with approximately $15 million available to repurchase from our current board approval.

In summary, we are very pleased with our financial performance, and our financial position has never been stronger. Based on our year-end backlog of 800 million, our land position, and planned community openings, we anticipate that 2005 will be our 10th consecutive record year. We currently estimate diluted earnings per share to be between 665 and 690, which represents an increase of 5 to 9 percent. We will update this annual range as we release quarterly earnings in '05, as we have in the past. This completes our formal presentation. We now will open the call for questions or comments.

(Operator Instructions). Greg Halter, LJR Great Lakes Review.

Congratulations on the good results for 2004. I noticed your cancellation rate you provided for the quarter, and for the year in '03, I had it at 21 percent. Do you have that number for the full year of '04?

Yes. Bob talks about the fourth quarter rate being better than it was a year ago for the quarter. And as far as for the year, for 2004, the rate was 21 percent, the same rate as it was in '03 overall.

Okay. And cash flow from operations -- do you have a figure for that so far, and I would presume it was a use of cash, given your land purchases for the year?

Yes. Preliminary, we have that -- drafting our K and stuff. But yes, when you look at how much the inventories went up -- if you look at last year, we had -- from operating activities, we were a user by about 40 million, Greg. And this year, the number looks, round figures, to be around 75 million, with the biggest thing, again, being inventories being up about 150 million.

Okay. And looking at material increases -- and I know I've asked this in the past, but now I see lumber is up about 25 percent year over year, just looking at the futures contract. I'm just wondering what you are doing on the cost protection side and what you see on the material costs going forward.

We're really not doing anything different, Greg, than we've done in the past. And to date, I can't tell you that we've seen anything meaningful. We do our best to have our backlog entirely protected of unshipped units. We've seen some little increases from municipalities on fees -- impact fees, sewer and water -- but nothing really way out right now.

On the material side, I can't see anything significant.

And in the Midwest, with volumes down, definitely, we're not seeing the type of increases in the Midwest that we're seeing in D.C. and Florida. There's definitely been some disruption issues in Florida with shingles and roofers and concrete, but also, as far as our business -- from what we see -- we continue to see very strong demand and more pricing power in Florida and D.C. But, overall, I don't think it's changed real significantly.

Okay. And on the unsold spec homes -- I know you've mentioned that it's the lowest or one of the lowest in the industry and (multiple speakers)

Less than 5 percent.

Right. And it's generally been in the low hundreds. It was even 99 in the fourth quarter of last year. But it had been higher -- in the 140, 150's even 160 in 1998. Is there any sort of conscious decision there or how does that decision work on spec homes?

Well, it's definitely conscious. You'll be happy to hear that. The answer is, though, that seriously we have increased it slightly. Historically, it hovered around the low hundreds, as you said -- 100 to 120, sometimes 140. We have -- we started to open up a number of new communities in the latter part of last year and also to get out of some older ones -- the confluence of those two things. Aggressive is a relative term -- but maybe being slightly more aggressive within the context of a rather conservative approach.

But the increase, Greg, is primarily in the Midwest.

Mostly in the Midwest. Okay.

Mostly in the Midwest. We haven't changed any of our process, as far as the way we look at it, but as we've opened -- as Bob said, we've also -- in the Midwest and some other places, we try to spend a lot of time on new product. And as you start some of this new product, you want to build it also, and that's a little bit of it also. But today, with us being a little over 200, working toward 150 communities, it's still less than 2 per community.

And my guess is it will hover around 5 percent -- maybe 4 to 5 percent on a go-forward basis. I don't know if that's a conscious percentage, but it seems to be about where it is.

Okay. And looking at the active subdivisions -- obviously, there've been delays. I think we've talked about this in the past. Is there anything changing there? Is it getting any better or any worse? Why are you confident that you'll get to where you plan to be by the end of '05?

Because these are projects that we've been working on so damn long that we just think we will be. These are things we haven't yet started. These are jobs that should have been open -- many of which should have been opened last year. Some of which will open early this year. Look, we feel confident that we will be able to realize. We don't want to disappoint ourselves, and we don't want to disappoint the market. The guidance that we've given, we feel quite confident in. We have embedded into a certain amount of dilution and margins. Hopefully that won't happen -- companywide that is -- but it may. So, we're confident we'll get these new communities open.

Keep in mind, Greg, that in 2002, we bought about $90 million of land. In 2003, we bought 220. In '04, we bought 270. These subdivisions that we're opening now, unfortunately, have been purchased a little while ago. So a lot of these should have been opened, as Bob said, a couple of quarters ago.

We expected the fourth quarter of '04 to be a much stronger quarter in terms of sales and closings. And, again, delays in opening and the Florida hurricanes were negative contributors, as it turned out. But we will get there. We'll make it up, and I think it will be a very strong year.

I would also have to presume that the land that you purchased over these past couple of years has also appreciated, and I don't presume you do anything with that, but it's booked as costs on your books.

That's right, it's booked as cost, and hopefully there has been appreciation. But we try to be very, very careful with our land purchases because the housing market has been very strong.

Joe Locker (ph), Carlin Financial.

Great quarter. I just want to congratulate you on that. And just -- I wanted to talk about your debt. I guess it was 287 million at the end of the quarter, and with the yield curve really flattening -- and with the assumption you are going to purchase an extra 340 million in land this year -- do you think of some kind of fixed -- 10-year or something -- where you can at least take some of the interest rate risk off the short-term?

Great question, and it's something that we seriously consider from time to time. Phil, you might want to amplify on that.

We actually have a board meeting coming up in the middle of February. We will be discussing that with our Board. We have looked, in the past, at some perhaps 7-to-10-year type debt to fix the rate, and we will continue looking at that. No doubt.

Right. And the 4.2 percent was an average for the fourth quarter?

Yes, it was.

And what is it currently -- like today -- especially after the Fed raised rates just a couple of days ago?

Today, it is a little bit higher than that. When you look at rates the last couple of days, they really haven't moved much. Mortgages have pretty much been flat. But if you look at LIBOR today, 6-month LIBOR is hovering around 3, and our financing is 150 over that. In our bank agreement, we can do want to 1-to-6-month LIBOR tranches. So today, we're probably a little over for 4.

So, like 4.5, something like that?

Probably a little below that.

Probably a little below that? Just on the land purchases this year and the 340 million -- is that going to be all raw land, or is some of that just going to be options? Is it all going to be developed?

I think we probably have a breakdown, but the lion's share of it is raw. Raw -- and when I say raw, it is in title. We don't speculate. It's ready to be put to the use for which we need to put it to, but I don't know what the percentage of it is there. I guess it's probably 85 percent raw.

Yes, exactly. Almost all of it is. We really don't do that much developed lot deals. Almost all of its is raw.

So, all of it is in title, though, if it is raw?

Yes. Buying title ground plus utilities to the site -- it is taking longer than it used to, once you buy it -- to get shovel in the ground and start development. Sometimes you are waiting for final construction permits and so forth, and we do expect the interest until its underdevelopment. But we do develop about 90 percent of our own ground.

(Operator Instructions). Gentlemen, I'm showing no further questions at this time.

Well, thank you very much for joining us, and we look forward to talking to you at the end of the first quarter.

Thanks a lot.

Thank you.

Thank you. This does conclude today's teleconference.