M/I Homes Inc (MHO) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, my name is Stacy and I will be your conference facilitator today. At this time I would like to welcome everyone to the M/I Homes year end conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] Thank you.

It is now my pleasure to turn the floor over to your host, Mr. Phil Creek. Sir, you may begin your conference.

Thank you very much for joining us today. Joining me on the call from Columbus, Ohio, is Bob Schottenstein, our CEO and President, and Ann Marie Hunker our Corporate Controller. First, to address regulation fair disclosure. We encourage you to ask any questions regarding issues that you consider material during this call because, as you know, we are prohibited from discussing significant non-public items with you directly.

We provided our 2006 earnings guidance in our press release and as to forward-looking statements, this presentation includes forward-looking statements which characterized in the private securities Litigation Reform Act of 1995. Any statements that are not historical in nature are forward-looking statements that involve risks and uncertainties that could cause actual results to different materially from those in those forward-looking statements, please refer to our most recent 10K, 10Q and earnings press releases 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 of 2007. It should also be noted that certain information related to the use of non-GAAP financial measures required by S.E.C. regulation G is posted on our website. This information can be accessed by logging on to the M/I Homes website at MIHomes.com, then clicking on the Investor Relations section of the site and selecting non-GAAP financial information reconciliation.

Now we'll turn the call over to Bob.

Thanks, Phil. Good afternoon, everyone. 2005 was another great year for M/I Homes. And we thank you for joining us today, allowing us to share the highlights with you, the highlights of what was our tenth consecutive record year.

We concluded the year with our strong -- strongest quarterly results in the Company's 29 year history with profits increasing 68% during the fourth quarter of '05 over the fourth quarter of '04. Despite continued and well-documented softness in our three Midwest markets, and despite our homes delivered being slightly lower than last year, we nonetheless produced record revenues and record income, posting diluted EPS of $6.93, a 9% increase over calendar year 2004. We maintained strong margins with gross margins of 25.2% and operating margins of 13%.

We achieved record high year end backlog of 2,807 units with an average selling price of $340,000 per home, and comprising a total sales value of $954 million. During the year, we significantly improved our capital structure. With the issuance of $200 million of senior notes and also by expanding our credit facility to $725 million which has resulted in a significant increase in our financial flexibility. Our land position is the strongest its been in the history of our company, during calendar year 2005 as planned we purchased $320 million of ground. Also of note during the year, proudly, our company was named to the S&P SmallCap 600.

From an operational standpoint, other highlights include the continued successful implementation of our diversification strategy into our higher growth markets. Nothing evidences this better than the fact that at year end 70% of our backlog was situated in our Florida, North Carolina and D.C. markets, our highest growth markets, compared to just slightly less than 50% of our backlog being situated in those markets at year end '04. Annual homes delivered and new contracts in 2005 in our Florida markets increased 27% and 23% respectively for the year.

Likewise, our North Carolina and D.C. markets experienced 20% increases in both homes delivered and new contracts for calendar year 2005. Our fourth quarter 2005 new contracts company-wide were about even when compared to 2004's comparable period. However, we are pleased to report that new contracts were an all-time record for the month of December of '04.

Our Florida operations had a very strong quarter with new contracts up 41% compared with Q4 of '04, likewise we experienced strong demand in North Carolina where fourth quarter new contracts increased by over 70%, that's seven-zero percent over 2004's fourth quarter. The increases in Florida and North Carolina markets offset the continued softness in our three Midwest markets and they also helped to offset what we believe is a more normalization of order activity during the month of December in our Washington, D.C. operation. In addition, we're quite pleased to report that our January of 2006 new contracts reached a record level for us for the month of January, exceeding '05's January, new contract level, by more than 25%.

During the year we -- year of '05 we also significantly improved the number of open communities. During the quarter, our community -- our community count increased to 150 by quarter's end, up from 140 at the end of 2005's third quarter. This 150 open communities at year end compares to 125 open communities at the end of '04. Currently we estimate that our communities will increase during the year 2006 to approximately 175 active communities by year end. And as indicated in our press release this morning, on a net basis, all of the new communities are situated in our Florida, D.C. and North Carolina markets.

We also continue to allocate capital to our higher growth markets. As I mentioned, we purchased $322 million of ground in calendar year 2005. Over 80% of the land purchases were in Florida, North Carolina and Washington, D.C. For calendar year '06 we anticipate purchasing approximately $250 million worth of ground and consistent with the trend, which began a little over a year ago, approximately 80% or more of those purchases will occur outside the Midwest and what we perceive to believe are our highest growth markets.

Another highlight of calendar year 2005 involved the completion of our first ever acquisition. During the year we acquired the home building operations of Shamrock Homes, a privately held home builder and land developer located in Lake County, Florida. Adjacent to and northwest of the Orlando market we will be managing this operation out of our Orlando operation -- out of our Orlando operations. Thus far the acquisition has been very good for our company and we believe it will continue to be a very significant part of our growth prospects.

Last, but certainly not least, we're very proud of the record that we once again achieved in the area of quality and customer service. During calendar year 2005, for the 15th consecutive year, our homeowner approval rating exceeded 95%. We believe that that is also a significant reason for the success of our company and continue to focus intently on that metric.

Now for our outlook for calendar year 2006. 2006 we will be celebrating our 30th year in business. We believe this year will be a breakout year for M/I Homes in terms of homes delivered and new contracts and the guidance we provided today firmly supports the fact that we believe that 2006 will be our 11th consecutive record year. Over the past several years our revenue and units have not grown significantly, hovering in the low 4,000 unit run rate range. However, and we believe more importantly, during those -- that -- that same period our profits and our financial strength have improved, allowing us to create a stronger, more diversified platform for future growth. While during calendar year '05 we fell short of our annual new contract growth target of 15%, largely as a result of greater than anticipated softness in the Midwest, coupled with delays and community openings in Florida as a result of hurricanes and -- and -- and protracted processes involving the entitlement process, we expect to reach the 15% new contract growth target in 2006. In addition, we expect to deliver approximately 5,000 homes in 2006, representing a 17% increase over 2005.

Implicit in all of these projections is the fact that we have planned for no improvement whatsoever in the Midwest. As I will speak to in a few moments, market conditions in Columbus, Cincinnati and Indianapolis remain challenging. And -- and all of our projections for a record 2006 take into account that we see no real improvement occurring in these markets during the next 12 months. During calendar year 2005 we -- we undertook significant efforts in our three Midwestern markets to right size them given what we see as a contraction in these markets. In addition, we've been running promotions in Columbus, Cincinnati and Indianapolis for more than 60 days now which has -- which has resulted in the higher sales level for us, but at reduced margins.

Specifically, in 2006, among Columbus, Cincinnati and Indianapolis we expect to deliver approximately 2,100 homes. This compares to 2,400 homes delivered in those three markets in 2005. Notwithstanding the 300 home reduction we still expect on a net basis our closings to increase to approximately 5,000 homes company-wide. In other words, stated another way, all of the growth will come from Florida, North Carolina and Washington, D.C.

In that regard, we have planned for significant growth and continued strong margins in our Florida markets and firmly believe the business is there to support it. On December 31, 2005 we had a backlog of about 1500 homes in Florida, which was higher than last year by over 40% and exceeded all of 2005's annual deliveries. Our community count in Florida is expected to increase by over 70% in 2006. We expect to close around 2000 homes in the state of Florida in 2006. And project additional growth in 2007 and beyond. In North Carolina, we've also planned on our setup for significant growth with improving margins. We've improved our locations, we've diversified our product offerings, our land position in North Carolina, specifically Charlotte and Raleigh, is the best its ever been. Our backlog at year end was 55% higher than a year ago and we expect to deliver 600 homes combined in our Charlotte and Raleigh operations in 2006.

In our DC market we've also planned for continued growth but at normalized margins. We are expecting our margins to reduce there over the peak levels which they reached there during the middle of calendar year 2005. We've had softness in this market, much has been written about it, but we think that the market is still one of the strongest in the country and that the -- and that the current levels of demand are at what many refer to and we would also call a more normalized situation. Pricing pressures will reduce margins but nonetheless we expect to deliver around 350 homes in DC in 2006, which is around 100 homes more than we delivered during calendar year 2005.

In calendar year 2006, about 60% of our closings will occur outside the Midwest. This past year the number was around 45%. This is all part of the geographic diversification strategy that we've spoken to during the past 12 to 18 months. We anticipate that 2006 full year gross margins could decline and have planned for their decline by somewhere between 50 and 100 basis points due to promotions, pricing pressures, primarily in the Midwest, slightly in the Washington market. We feel very confident about our goals for 2006.

Let me briefly review our markets and then I will turn things back over to Phil who will more thoroughly review our financial -- our financial highlights. Columbus, Ohio continues to be very challenged, single family permits were down about 25% in calendar year '05. Our -- from M/I Homes standpoint our contracts were down 20%. We believe we are out-competing the market. We always have, and we believe we still are. We've made a number of changes to right size -- right size our operations. We have laid off a significant number of employees, regrettably, because we had to. And we've also consolidated what was a three division operation into two divisions to help improve efficiencies and streamline processes. At the present time we're promoting heavily and feel that we are operating at a gross margin run rate of around 18 to 19% today.

We delivered over 1800 homes in Columbus during 20005 compared to 2004's record deliveries of 2200. Even though our volume is down, however, we had a very solidly profitable year, largely it was as a result of being very proactive with expense reduction and right sizing, and we expect deliveries in 2006 above or around the 1500 mark for us in Columbus. We believe our market share in terms of the total market in Columbus has actually increased, notwithstanding our unit reduction.

Cincinnati, the tale is somewhat similar with Columbus. Our business is off. The market is off. Our current run rate from a margin standpoint is around 18 to 19%. We have improved our product offering. We will be slightly increasing our community count in '06. But from a profitability standpoint, we expect very -- we would call mediocre profits in Cincinnati, in calendar year 2006, although we will be profitable.

Likewise in Indianapolis, that market is also off. Our profit, profitability levels there are -- are nothing more than mediocre. We expect slightly higher sales and closings in '06, even though -- although we will have an erosion of profitability. The reason for the slightly higher sales and closings is -- is a result of community count.

Moving to Florida. Tampa continues to shine. We had our best year ever in Tampa with a record sales, homes delivered and profitability. Homes delivered were up almost 10%. We anticipate closing over 800 homes in Tampa in calendar year '06 compared to 550 this past year. And expect additional and significant growth in '07 and beyond. The Tampa market continues to be very strong for M/I Homes.

Orlando is also an outstanding market for us. And when I talk about Orlando, I'm talking about also the Shamrock acquisition which we now operate as part of our Orlando operation. Our margins in Orlando are among the strongest in the Company. Our backlog is up 10% from a year ago. We delivered approximately 600 homes in the greater Orlando market in '05 and expect to deliver approximately 850 homes this year, and like Tampa, expect further and significant growth in '07 and beyond. West Palm Beach, our backlog increased 80% from a year ago, which would suggest a very strong '06 for us. Sales increased 40% over last year. Our -- while land continues to be quite a challenge in this market, we have significantly improved our land position. Expecting very profitable year of closing around 275 homes in the Palm Beach operation in calendar year '06.

Overall in Florida our gross margins on new orders continue to run in the 25 to 30% range. We're very excited and very bullish about our Florida operations. And we think that -- that -- that there's a lot of justification for our beliefs. We delivered nearly 1,000 homes in Florida in '04. Over 1250 in '05 and expect to deliver more than 1900 homes in -- in '06. And over 2500 deliveries at the present time are projected for 2007 in Florida. 40% of our total land purchases in 2006 are projected to be in our Florida markets.

Charlotte, North Carolina. Our business has improved tremendously. Our sales in 2005 increased over 55% when compared to '04, making 2005 the second highest sales for us in the history of our Charlotte operations, a market we've been in since 1985. In 2006, we project to sell over 400 homes in Charlotte, which will be the best year we've ever had in that market. Our back log was up 90% from the prior year. Raleigh, our sales were up 10% in '05. We also project sales to increase over 50% as our community count in Raleigh increases in 2006. We expect to produce significantly higher closings also in '06 and -- and hope to enjoy a very significant increase in profitability.

Washington, D.C., as I alluded to earlier, in the last couple of months we have experienced a decline in market activity, both in terms of traffic and new contracts. However, we believe results will still be quite strong for us in this market this year. Our closings were up almost 30% for the year, compared to the prior year. We closed approximately 200 homes in the -- in our DC operations in '04. That number increased to 250 in '05. And this year we expect it to jump to around 350 closings.

And with that, I'll turn it over to Phil.

Thanks, Bob. 2005, the fourth quarter new contracts were 901, down slightly from last year. For the quarter, traffic decreased 1% and our cancellation rate was 26% compared to 22% in last year's fourth quarter. And our increased cancellation rate was Midwest and Washington, D.C. related. Our sales were down 6% in October. And traffic was up 6%. Sales were down 26% in November, with traffic down 14%. But our sales were up 38% in December and traffic was up 4%. And as we have stated, December's new orders were a record for us.

Our annual goal continues to be increasing new -- new orders by approximately 15%, and we believe that we are well-positioned to achieve this goal in '06. And as our press release and Bob stated, our January new orders were also a record. Our community count was 150 at 12/31/05 versus 125 a year ago. We currently have 86 communities in the Midwest, 32 in Florida and 32 in North Carolina and D.C. Our projection for 2006 is to increase to 175 by year end with the 17% increase being entirely in our higher growth markets, with the estimated December 2006 detail being 85 communities in the Midwest, 50 in Florida and 40 in North Carolina and D.C.

We are pleased to report homes delivered in 2005's fourth quarter reached an all-time record of 1,616 compared to 1200 for 2004's fourth quarter up 35%, and for the 12 months ended 12/31/05 homes delivered were 4291, slightly below last year's all-time record of 4303. Soft market conditions in the Midwest and Florida delays caused our annual homes delivered to be lower than the prior year, however, we are very pleased with the records achieved in certain of our markets, revenue increased 45% in the fourth quarter and increased 15% for the year, compared to the same periods in '04. Average sale price for the fourth quarter was 302,000, up from 289,000 for last year's fourth quarter. And for the year, the average sales price was 298,000, versus 268,000 in '04.

Gross profit increased 44.6 million in the fourth quarter of '05, and increased 41.1 million for the 12 months over '04. Margin percentage increased by 140 basis points in the fourth quarter, and decreased 20 basis points for the 12 months of '05 to 25% for the fourth quarter and 25.2 gross margin for the 12 months. We had given guidance of 25% for the full year in our third quarter call and we're pleased to exceed that. As Bob mentioned, we currently project that gross margins could decline 50 to 100 basis points in 2006 compared to 2005 levels. This translates into an estimated 24.2 to 24.7% gross margin for '06.

Land gross profit was 2.6 million in 2005's fourth quarter compared to 900,000 in last year's fourth quarter. Land gross profit for the full year '05 was 7.3 million, and was 1.8 million for the same period of '04. The gross -- the profit in 2005 for the quarter and year-to-date related to land sales in Columbus, Tampa and Virginia, and land sales gross profit percentage was about 16% for the quarter and year-to-date. Our G&A costs in '05's fourth quarter increased 8.5 million and remains steady at 5.4 as a percent of revenue, and for '05 G&A costs increased 15.7 million and as a percent of revenue increased 50 basis points to 6% from a year ago.

The dollar increase is attributable to increases in land-related expenses of approximately 6.9 million associated with our increased land investment, items such as real estate taxes, homeowner's association fees and additional land personnel. In addition, during 2005 we wrote off certain deposits and costs on land deals where the return potential had declined from our initial evaluations of approximately 2.5 million. And 2 million of the 2.5 million was in the fourth quarter. We constantly review market conditions as we progress through the land acquisition process.

Other increases are attributable to our acquisition of Shamrock homes, increases in our home design operations to ensure that we're meeting the needs of our customers, insurance -- increased insurance costs and payroll related increases related to our record year. Selling expenses for the quarter and year-to-date as a percent of revenue decreased 70 and 10 basis points respectively to 5.4% and 6.2%. From a dollar perspective selling expenses increased 9.5 million primarily as a result of volume increases as well as increased co-op expense participation and increased to model related cost as our community count increases.

Overall our SG&A expenses decreased to 10.8% of revenue in the fourth quarter, but increased to 12.2% of revenue for '05. In '04 our SG&A percentage was 11.9, our lowest ever. We currently estimate that our 2006 SG&A percentage will run in the mid-12% area as we experience a full year of certain land costs and add equity based compensation expense.

Operating income in the fourth quarter of '05 was 14.2% of revenue, and for the 12 months ended 12/31/05, 13% of revenue compared to 12.1 for the fourth quarter of '04 and 13.6 for the prior year. The year-to-date decline reflects all of the factors I've previously discussed including increased land-related costs and timing of costs associated with our growth initiatives, and costs associated with our Midwest sales efforts.

Interest expense increased 3.7 million for the fourth quarter, and 5.8 million for '05 compared to the same periods in '04. The increase in '05 was primarily due to an increase in weighted average borrowings from 248 million in '04 to 425 million in '05. The increase is also due to our weighted average borrowing rate increasing to 6.2 from 5.9% last year. This increase was partially offset by a 5.8 million increase in capitalized interest, as we have more land under development when compared to '04. We have 19.2 million in capitalized interest on our balance sheet at 12/31/05 compared to 15.3 million last year, the amount remains at less than 2% of our total assets.

Our effective income tax rate for the fourth quarter is 38%, and 37.6 for the year compared to 39.5 for the same periods in '04. Our effective tax rate for '05 reflects the change in the estimate of our own -- of our ongoing effective tax rate from 39% to 38%. And this change to 38% is primarily due to clarifications provided during the third quarter on the manufacturing credit included within the American Jobs Creation Act of '04. And in addition, the rate change reflects the change in the state of Ohio tax from one that is income-based to one that is based on gross receipts along with other changes in state taxes.

For the fourth quarter, net income was a record 41.3 million, up 68% from '04's fourth quarter at 24.5 million, and net income for the 12 months increased 10% to 100.8 million. Diluted earnings per share for the fourth quarter increased to a record $2.84 for the quarter from $1.70 a year ago, diluted EPS was $6.93 for '05 up 9% from '04's $6.35. These results of $6.93 per share were at the top of our $6.75 to $6.95 guidance.

M/I financial, which includes our title operations, our mortgage and title operations pretax income increased from 3.6 million '04's fourth quarter to 5.2 million in the same period in '05. The increase was primarily the result of a 25% increase in loans originated from 881 in '04 to 1,102 in '05 and a higher average loan amount.

Loan to value on our first mortgages for the year was 87% in '05 compared to 84% in '04 and for the year 86% of our loans were conventional with 14% being FHA/VA. And this compares to 83% and 17% respectively in 2004. The FHA maximum mortgage limits in the markets that we operate in range from 172,000 in Florida to 313,000 in Virginia. Approximately 45% of our fourth quarter closings were adjustable rate mortgages, and this compares to 53% in the fourth quarter of '04. 34% of our fourth quarter '05 applications were adjustable rate mortgages compared to the third quarter's 26%. And of mortgages closed during the fourth quarter, 33% were interest only loans. This 33% compares to 31% in 2005's third quarter. Overall our average mortgage amount was 226,000 in 2005's fourth quarter, the average borrower or credit score of mortgages originated by MI Financial was 716 in the fourth quarter of '05 compared to 718 in 2005's third quarter, and these scores compared to 721 in 2004's fourth quarter and 718 in '04's third quarter.

The percentage of customers that receive down payment assistant in the fourth quarter decreased to 6% versus 7% in '04 in the fourth quarter the average mortgage balance on these down payment assisted originations were 175,000 compared to 173,000 in '04. The majority of these customers are in our Indianapolis and Columbus markets and buy our entry level product. 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 2005 we did not repurchase any loans. Our mortgage operation captured about 86% of our business in the fourth quarter, an increase when compared to '04's 85%. We believe there will be continued pressure on our capture rate due to increased competition as the mortgage business overall is somewhat slowing. We constantly focus on our capture rates as M/I Financial only serves M/I Homes customers. And, overall, our mortgage and title businesses produce 7% of total operating income during the fourth quarter and 11% year-to-date, and this compares to 9% and 14% respectively for 2004's same periods.

The balance sheet, home building inventories at 12/31/05 increased 35% over 12/31/04 due primarily to our increased backlog in our land activities. Compared to a year ago, where all land increased 12%, land under development increased 185% and finished unsold lots increased 24%. From a dollar standpoint at 12/31/05 we had 300 million of raw land, 225 million of land under development and 200 million of finished, unsold lots. Our total unsold land investment at 12/31/05 is 718 million which compares to 502 million at 12/31/04. And the market break down of our 718 million of unsold land at 12/31/05 is 275 million in the Midwest, 225 million in Florida and 218 million in North Carolina and D.C. We constantly focused on our land investment, as Bob said, we purchased about 320 million of land in '05, which includes the acquisition of Shamrock homes. And we've talked about the breakdown of those land purchases being about 18% Midwest, 51% Florida and 31% North Carolina and D.C.

At 12/31/ '05 we also had about $50 million invested in land joint ventures with a majority of these dollars being in Florida. In Florida we have five joint ventures that were done in 2005. Three with public builders and two with private home builders. And two of those five JV's have third party financing which is recourse to the JV land assets. We own 19,400 lots at 12/31/05 and have an additional 11,300 lots under our control. So in total today, we own a four-year supply and control about a six-year supply for a total under control of 30,700. This is about 900 more lots than we had a year ago. The breakdown of the 19,400 lots owned at 12/31/05 is 8700 in the Midwest, 7900 in Florida and 2800 in North Carolina and D.C. The Midwest owned lots of 8700 at 12/31/05 is about 700 lots less than it was a year ago. And the breakdown by region of our total lots under control is 13,000 in the Midwest, 11,900 in Florida and 5800 in North Carolina and Washington, D.C. And by percentages, our controlled land is now 42% Midwest, 39% Florida and 19% North Carolina and D.C.

At the end of the quarter, we had 382 specks in various stages of construction with $50 million of investment, this compares to 213 specs at December 31, 04 with 28 million of investment. This translates currently into 2 to 3 specs per community. 261 of these units at 12/31/05 are in the Midwest compared to 184 a year ago. The increase in spec levels from the prior year reflect our decision to stimulate sales in older subdivisions, address Midwest -- Midwest market issues which we've discussed and also to build and show case new product lines across certain of our markets, and even with these increases we still believe we have one of the lowest spec levels in the industry.

At December 31 '05 there was 260 million outstanding under our revolving credit facility. During the fourth quarter, to give us additional flexibility, we increased our bank lines to 725 million, exercised in the [accordion feature]ph included within the existing agreement. Our current bank facility matures in 2008 with pricing at LIBOR plus 150. Long term debt at 12/31/05 totaled 512 million compared to 317 at 12/31/04, this amount includes at 12/31/05 200 million of public singer notes that mature in 2012 with a fixed rate of 6 7/8. Home building debt to cap was 44% at year end versus 37% a year ago. We expect our home building debt to cap ratio to peak at around 50% in 2006 second quarter as our backlog increases and to decline to approximately 45% by year end. We focused closely on our home building debt to cap ratio and our goal is to be less than 50%.

Our interest coverage for the quarter remains strong at 7.1 times EBITDA, EBITDA for the quarter was 75.8 million. Interest incurred for the quarter was 8.6 million compared to 3.1 million in '04's fourth quarter. And for the year, EBITDA was 186.2 million, compared to 165.7 million in '04. And for the full year in '05, interest incurred was 26.3 million versus 2004's 14.8.

At 12/31/05 shareholders equity was 593 million with a book value per share of $41. We purchased -- we repurchased 9,800 treasury shares in 2005's fourth quarter at an average price of $40. A year in -- at year end we had 3.3 million shares in treasury at an average purchase price of $17, subsequent to December 31st and through yesterday we have repurchased 219,000 shares in 2006 and currently have 16 million available to repurchase from our current board approval. We will be reviewing, as usual, the share repurchase program at our upcoming quarterly board meeting. We constantly review our capital allocation process including land acquisition and stock repurchases. Our historical practice has been to repurchase stock if it retreats to the book value range, however we always focus on our balance sheet and its leverage in conjunction with this practice.

In summary, we are pleased with our financial performance and our financial condition continues to be very strong. Based on our year end backlog, land position and planned community openings, we anticipate that 2006 will be our 11th consecutive record year. We currently estimate diluted earnings per share to be between 755 and 775, representing an increase of approximately 10%. This also includes an estimated $0.21 per share for expensing equity compensation. I also want to provide you with our current projections on homes delivered by quarter, our current estimates are 850 deliveries in the first quarter, 975 in the second quarter, 1325 in the third, and 1850 in the fourth. And we will update our estimates as we release quarterly earnings this year as we have in the past.

This completes our formal presentation. We'll now open the call for any questions or comments.

[OPERATOR INSTRUCTIONS] Our first question is coming from Joel Locker from Carlin Financial.

Hi, guys. Nice quarter. Just wanted to start that off. Wanted to just talk about the community count, you said there'd be 175 by the end of '06, I was wondering if you could give a quarterly breakdown of what you expect at the end of the first, second and third quarters?

For communities?

For communities, yes.

Our current estimates are at March of '06 it would be about 155, and that would be, like, 88 Midwest, 35 Florida, 32 North Carolina and D.C. At the end of the second quarter, about 160, 85 Midwest, 42 Florida, 33 North Carolina and D.C., September about 165, 83, 48 and 34. And then end of the year 175, 85, 50 and 40.

85, 50 and 40. And are these -- I -- I remember I guess a month ago in New York saying that these communities might be a little larger in size on average than the year before. Is that --

I think that's a fair statement, Joel.

So did they have maybe five -- five percent more houses per community or something like that, or kind of a ballpark range?

I -- I don't know if I'd say five, but I don't think it's more than ten. I think 10%. I think they are a little bit larger, they tend to be that way.

About ten% or so. And when you said specs, how many specs were those, were those finished specs or just overall specs?

Overall specs, we really have very few finished specs, when you actually look at the dollars involved, the dollars involved generally are about 125 to 150,000 per spec and of course that average sale price today is 340 so in general our specs tend to be, you know, 1/3 to 1/2 complete.

Right.

We have very few completed specs in our company.

What was the total for the specs, it was 370 or something?

The total level of specs?

Total number of them.

Yes.

We had 382 specs at the end of the year, 50 million of investment and of the 382, 261 were in the Midwest.

Right. So -- but finished specs it would probably be less than -- less than 150, would it be less than one per community?

It would be -- I probably don't have 50 -- 50 finished specs in my company.

If that.

50 finished specs. All right. Thanks. And how many shares did you say you repurchased in the fourth quarter?

Actually in the fourth quarter I purchased 9,800. But subsequent to December 31st through yesterday I purchased 219,000.

Alrighty. Thanks a lot.

Thank you very much.

Thank you. Our next question is coming from Dennis McGill from Credit Suisse.

Hi, Dennis.

Hi, guys. How are you?

Great.

Just fine, Dennis.

Just a couple quick, quick ones. On the regions, could you give me an idea of where your ASP is, maybe where the -- the full year '05 would give me some sense of balance?

Phil -- Phil will take a crack at that one.

The average price for '06, Dennis?

You could come up with '05 and if you want to talk about '06, that would help.

Okay. If you look at 12/31/05 our average sale price in backlog in the Midwest is 288.

Phil, can you do closings?

That would be year end backlog which would forecast first half closings for '06.

Okay. I --

This might be your best number.

Okay.

Yes. And the backlog at 12/31/05 in Florida was 350 and then the average sale price in North Carolina and D.C. in backlog at year end was 430 so that totals 340.

Yes.

So when we look at our average sale price in '06, we always try to be a little conservative.

And we're going to have more attached product closing in '06 than in '05.

If I were guessing the number again, we try to be a little conservative, the number I'm using, Dennis, for next year is 320.

That's the average? That's the closing price, correct?

320 for the 5,000 closing.

Okay. And would you have a breakout by region.

We could probably do it.

I could probably get it but overall I'd just use 320 for the 5,000 closings.

Okay. You mentioned you saw quite a bounce in orders here in January. Can -- can you just let us know just comp-wise what you were up against in January and then kind of how the rest of the first quarter plays out?

Yes. If you look at January, last January we sold 280. This January we sold 350. So overall we were up, like, 25%.

Yes.

And when you break it down, the Midwest actually was up about 20%. Florida was up about 15%. And North Carolina and D.C. was up about 75% primarily because we had a very strong month in Charlotte, we have a lot more active communities now in Charlotte than we did a year ago and our business is quite a bit better.

Okay.

When you start looking at comps overall from a sales standpoint, last year in the first quarter we sold 1078. And then last year in the second quarter we sold 1173. And those numbers were lower than '04 and '03, and of course now also now we have more open active communities.

I guess if you were to think about February and March, how much were orders down relative to '04?

In February of '05 I sold 330, in February of '04 I sold 430. So, I was down whatever, 20, 25% less February.

Yes. And then on March?

March it looks like I was down about a little over 10%. I sold 470 last March versus 530 in '04.

Okay. That's helpful. And then I guess just more top level, you -- you mentioned you're not really assuming so much of a change maybe even getting worst in the Midwest.

That's right.

What kind of market environment are you assuming in Florida? Are you forecasting that absorptions stay constant or north or south of what you are doing today?

Actually, in our own projections we're -- we're expecting things to stay about where they are, no better and maybe a slight reduction in gross margins. So that was -- that would imply maybe a very, very slight decrease in demand. But still for us, with our community count, our locations, our product offering we're expecting a very strong year in -- in the three Florida markets.

Okay.

Like we said before, Dennis, the Florida backlog at 12/31/05 is 1540.

More than we closed all last year.

So we're expecting to close 1,900 to 2,000. So been pretty much -- most of our markets -- definitely things we sell through June we can get closed this year, so again we're expecting strong sales and strong closings in Florida.

I -- I guess that's why I was a little bit surprised initially by your gross margin comments overall because you're going to have a huge mix shift to Florida so I assume, obviously, the Midwest is downsizable.

Well, it is. It is. We've sort of turned the Queen Elizabeth around but we've still got a pretty big haul.

And --

So it's the drag from the Midwest. And, frankly, we think that the margins in DC are going to drop some as well.

That was my -- my next --

The -- the DC market is -- I mean, we -- you can believe half of what you read or -- or none of it. But the DC market has slowed down. It's still a very strong market. But I don't know -- it's just -- the run rate for margins is not going to be where it was --

Thats -- that was going to be my next --

We're not planning on it.

That was going to be my next question, in the DC market particularly what kind of market contraction do you think you'd be looking at if the market stays where it's at?

Probably 2 to 300 basis points.

What we've talked about in the calls in the past, the DC marketplace was 25% plus, depending on the location and price point and again, our thoughts are it could be off a couple hundred basis points.

Okay.

And also we recently talked about the Midwest being in the 20 to 22% range and what Bob talked about earlier was the 18 to 19% range.

On a -- on a relative basis, margins in DC today are still very, very good.

Sure.

It is just that we -- we have -- we compare things to -- to just times of extraordinary margin expansion, and now I think it's getting back to what we believe is a healthier level where product and presentation and salesmanship is going to determine the winners more than just order taking.

And also, we try to be somewhat conservative. Last year when we went into '05 we said margins could be up as much as 100 basis points and we ended up for '05 being off 30 basis points. So we are -- hopefully it is going to be better than that, but there are obviously issues in certain markets.

Okay. Any -- other than, obviously, the incentives being higher in the Midwest is there anything that would skew the SG&A and the corporate allocations by your region? I guess that you could think about a similar level that's tied to those gross margins?

I wouldn't see anything significant. I mean, one of the things we talked about again, as far as the SG&A, I mean, with our land investment, as you have real estate taxes going up and HOA fees and those types of things, we're always dealing with those, but we are reducing our land investment in the Midwest and hopefully we are going to get our inventory turns up some. I mean, if we can go from 4,200 closings to 5,000, that would definitely help some of those items.

Great. That's been very helpful. Thank you, guys.

Thank you very much. Other questions.

Thank you. Our next question is coming from Greg Halter from Great Lakes Review.

Good afternoon, guys, and congratulations on hitting the -- the closing targets that you had set in the community counts.

Thanks, Greg.

We appreciate that. Thank you, Greg.

Wondering on the FAS 123-R, which method you will be using?

Black-Scholes.

I mean the -- the modified perspective, or -- if you're restating the past or not restating?

No. We're going prospective. The $0.21 is our estimate for '06, no restating of past periods.

Okay. So on the prospective basis.

Yes.

And, Phil, I don't know if you said this or not but what -- what is the total amount of debt the Company has or had at 12/31/05.

At 40 million.

In the press release. The home building debt was 465. Let me get to my balance sheet.

It's 512.

How much?

512.

512. Which was at year end 260 of notes payable to the banks, 46 to the mortgage line, 200 in senior notes and like 5 million of other, mortgages and those type things, Greg, for a total of 512 million.

Okay.

Was total debt.

All right. And applaud the share repurchase specifically subsequent to the end of the year. On that 219,000, do you have an average that you payed?

Yes. I have that. It's basically at 39, 3934 to be exact, Greg.

All right. And, on the options, do you see that coming out at about $0.05 per quarter on a -- on an even basis?

We're working with our accountant with that. I would imagine it would be somewhat equal, the $0.21. We're also looking at our directors compensation. We'll be doing that at the upcoming board meeting. And we're probably going to do some equity-based comp for them sometime this year, and that also would impact that. So we've got a little bit of an estimate in there for that, Greg.

Okay.

We think we built that in for -- in the $0.21.

All right. I think that is all I have.

Thanks a lot.

Thank you. Our next question is coming from Stephen Kim from Citigroup.

Hey, guys. Good quarter.

Steve, how are you, buddy?

I'm good. You guys did a helluva job today.

Thank you very much.

[inaudible]

I guess they'll let -- they'll let us come back tomorrow.

Right. I -- most of my questions were already asked, but I guess I wanted to understand strategically are you aiming to bring a product mix in any particular direction, either, sort of lower prices, I guess comes first to mind, are there certain segments of let's say the D.C. market that you anticipate will be stronger than others, or the Florida market you think will be stronger than others? Just trying to get a sense for this average sales price which seems like you're being pretty conservative with, just wanted to make sure there's nothing else that is going to be coming down the pike in terms of mixed shift.

No. I appreciate that. And we might be able to provide you with more information after the call on it, but basically in -- in Tampa and in Orlando we're moving towards, and I -- I just don't know right off the top of my head whether we'll realize it fully this year but we're moving towards a 15% -- a 15% mix on attached versus detached. So that's going to help soften things, particularly in Orlando, where at year end our average price in Orlando was -- was almost $400,000 and there was -- there was 0 attached product on the year end backlog in Orlando, a year from today the year end backlog in Orlando will probably be, like I said, around 15% attached. So that will help to bring that down. But, other than that, other than -- other than the focus on -- on -- selectively on a little bit more attached and particularly in Florida, and we'll also be introducing some attached stuff in North Carolina, there's -- there's really no -- there's -- there's really no -- no meaningful shift over and above what we're doing today.

Okay. Great. Now that attached product you're planning on -- on increasing down in Florida, is that -- is that -- I mean, is that -- any of that more than three stories?

No. Well -- No, no, not in Florida. Actually in -- there's one product, we've got Shamrock, the builder we bought in Lake County has one project that I think is four stories.

Okay.

But other than that, and we've got some two over twos in the Washington market as well, but nothing above. But 90% of our attached is the conventional attached town home.

Okay. And then can you just help me understand, when it -- when it comes to actually managing the day-to-day or week-to-week battle, let's say in -- in some of your tougher markets, as we head over the next six to eight weeks, obviously the big conflict or the -- the controversy in the market is whether or not what we're seeing over the -- December January is sort of a seasonal slowdown or whether it represents sort of the beginning of a nose dive and a lot of people are basically saying, well it is seasonal and then other people are saying it's not. We're going to know, I would think, here in the next six to eight weeks, and I guess my question is, at the sales office location what are you -- what plans do you have in place and what are your thresholds, if you could talk generally about it, do you have in place if the demand does not materialize or get better the way it should seasonally? In other words, if you -- for example, do you have certain levels or thresholds that you set by division or by community whereby, gee, if we're not getting whatever 2 contracts per X number of days then we're going to take this action and if it doesn't materialize we're going to take this action, is it like that?

Yes and no. Yes, that's -- the way we look at the business is really is a subdivision business and we've got 150 active communities today, and hopefully by year end we'll have somewhere around 175 to 180. The question is how are the -- how are the subdivisions doing each month? And management -- obviously each subdivision has a monthly budget, and when you start to fall behind on monthly budgets you have to find out why, and if -- if it is a demand driven as opposed to a sales person or product issue, you react one way. If it's -- if the enemy is us, we react another way. So --

What we do, Steve --

But that's -- that's -- it's really not a whole lot more than just trying to understand what's happening in each community month in, month out.

We get sales numbers every Tuesday, we have calls with our operations every Friday, for instance, we're going to be in D.C. Friday, so we're always out in our market places or talking to our market operators, and if our sales are below target, either units or margins we react to that. Because obviously what we're selling now impacts our third and fourth quarter closings this year, I mean, my backlog is 2,800. For me to close 5,000 I need to sell 22 to 2,500 houses the first six or seven months of the year to make my numbers.

Right.

So we monitor that every Tuesday, stay on top of it on the subdivision basis, as Bob said, and you react to it by looking at what the competition is doing, what our price points are and so forth.

Let me ask you this then, obviously, the thresholds that you have in place, the budgets -- budgets you have in place right now for volumes per community can't be anywhere near what you are expecting for let's say in six to eight weeks time. How much of an increase are you generally expecting in terms of same on same community between let's say now or the month of January versus, let's say, the month of April?

Well, actually in January we did exceed our budget in January.

Yes.

And we exceeded last year.

Yes.

Traditionally, kind of the worst two sales months of the year are December and January.

Right.

So do we expect more sales in February/March? Absolutely.

We certainly do.

You monitor those every Tuesday and you react to it, because we know we have to sell the houses, get them in backlog, get them started. Of course most of our cancellations occur prior to starting the houses, but we have to get the houses sold and get them in the field still get them closed this year to make that 5,000, but again we do have about 25% more communities than we did a year ago.

So in terms of the magnitude of how much of an increase you might be expecting or budgeting between January and April, feel comfortable giving a number?

Well, I mean, again, its our target to increase new contracts by 15% a year. And we are expecting this year to do that. The increase goes up more every quarter because we have more communities open. Bottom line, Steve, it goes like, 5 to 10% the first quarter. Sales increase. Second quarter goes up more toward 10% with a little bit higher increase in the second half as you have more communities open.

You are actually running well ahead of your budget so far for the first quarter then on a lower level of volume of course.

We are in good shape so far.

We are in good shape so far. And we also, have no -- here we are February the 2nd, but the last week of January the traffic and the interest in our various communities is a good indicator of February sales and we felt pretty good about that.

Yes. Steve, to be exact, my first quarter sales are budgeted to be up about 10% over last years first quarter, and my second quarter sales are budgeted to be up about 15% over last year.

Okay. One last question, Bobby, we've seen the Midwest over the last 15 years go through a -- kind of an interesting transformation. I mean, for many years it was a pretty solid market year in, year out and, jeez, in the last, five, six years it seems like it is like a black hole. And it seems like a lot of builders have sort of given up the ghost here and sort of moved on. And yourselves to some degree included. One could have said the same thing about California though in the mid-90s and, obviously that market came back. What's your view? What is your plan B in case the Midwest actually starts catches its feet and starts recovering? Are you positioned in that market?

Plan A is you hope that everyone gives up on it but us. First of all, just to put it in perspective, we had a phenomenal year in the Midwest in 2004.

Right.

So if -- if things -- but, from a sale -- that was because of strong closings and strong margins that occurred before the big slowdown that happened in the middle of '04. Early in the second quarter of '04 is when things really started to slowdown and they have continued to slow ever since then and, we're not -- five -- five years ago we were barely profitable in Charlotte and Raleigh. Some people said, what are you wasting your time there? I think these things come -- you are never going to hit on all cylinders, we remain very confident long term in the Midwest. We are not counting on it to being any kind of a meaningful contributor to profits this year. And frankly, it is becoming less of a contributor to units, but on the other hand, it's never even crossed our mind to exit the Cincinnati, Indianapolis or Columbus because we know that -- that in time, first of all, they are not closing up. There is still volume there. We're going to be profitable there this year. Profit levels in Columbus will be decent, I give them a B minus, our profit levels in Cinci and Indy I give a C minus but, , we -- we just -- you cannot turn the faucet on and off that quickly as you know and I know that you understand it as well as anybody and we just think that the time will come back. It's taken a while for this situation to develop. We don't see it turning around any time soon. But, in the -- in the meantime we have some very good locations. We've got some locations that are still selling houses at very decent paces at very respectable margins, its just the macro conditions are difficult, and as you've correctly pointed out a number of builders are struggling and some have exiting the market. But our market share has actually increased in Columbus and our market share has probably either maintained or might be off just slightly in Cinci and Indy.

Okay. Great --

Of course, Columbus has gone from about 10,000 to like 7 to 7,500 permits, as Bob said in basically 18 to 24 months and that was a pretty dramatic drop.

It happened quickly. I mean, we start out the year 500 units in the hole, and so that's -- it's hard to -- it -- you're -- you're sort of -- you're not -- you're -- you're not playing with house money for the latter part of the year.

But hopefully it's not going to go from 7,000 to 4,000. And also, I mean there's not the competition from all the big builders here that there is in Indy and in Cinci there's a couple of very strong private builders. So, I mean, every market has its issues, the issues in Columbus of course are lack of job growth, major employers aren't doing very well and so forth, but hopefully it has stabilized somewhat. Again, we're counting on 3 or 400 less deliveries this year than last year due to our lower backlog going in, but on the other hand, we have a strong backlog very much in our other markets so that -- that makes us feel confident.

I think North Carolina's best days are ahead of it. I don't know. We'll see if that happens.

Great. Well, thanks a lot guys, good job.

Steve, thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question is coming from Adam Egelberg from Silvercrest Asset Management.

Hey, guys.

Hi, Adam.

I was wondering -- I was wondering if could you talk about the land sales? I was wondering, A, were any of the land sales to other publicly traded home builders? And along with that --

Yes.

Yes?

Yes.

And were you bought -- were some of your land purchases also from other publicly traded home builders?

Let's first address the land sales, Adam, as we mentioned the land sales were in Columbus, Tampa and D.C. As far as Tampa and D.C., what's been happening for a few quarters, probably more than ever, it's not unusual at all when you are brought in to a subdivision by another builder they want in return lots in one of your communities.

Or it could happen the other way, in the case of Tampa, it did. We -- we were involved in the development of a very large master plan community. We knew we weren't going to do the entire development ourselves. It was a product offering that did not suit our pallet, and we sold some lots to KB and have developed a relationship with them in the greater Tampa market and will probably do further business with them, hopefully, similarly we've had situations like that in Washington with NV.

As far as the Columbus sales, I mean, obviously we're concerned about managing our investment with the market conditions. As far as land purchases, as you know, Adam, we developed 90% of our own ground, most of the purchases we make are finished lots. We do, as we talked about, we did a couple of joint ventures with public builders and a couple of private builders but by and large our land purchases come from land sellers, not builders.

Right.

From land sellers, not builders. Okay. That's great. And can you talk a little bit also about what's going on the cost side of the business? You -- I -- I say -- I mean, as I looked at the numbers for the industry, it looked like costs had sort of spiked, maybe to the 10% range even over the last 18 months. And I'm wondering if that's -- if that's a good number, A, and, B, if you think costs are still going to be rising pretty significantly?

Well, the -- the biggest cost issue the last couple of years has been on the land side.

No question.

And when you look at the land side outside of the Midwest, I mean, I think that the Florida, DC land cost in particular are not today what they were the also couple of years, but the land side has been the biggest issue the last couple of years.

And just to amplify that, just if I could, three elements to what -- to what Phil is saying, one, cost of land, two, the cost to develop land, hard costs and, three, the soft costs associated with entitling land. Included within that third component would also be the ex-actions and impacts that have arisen as a result of a more complex zoning entitlement process. The -- the aggregate of -- of all of those three elements of the land side have contributed significantly to -- to escalating costs from the home building standpoint.

And definitely from a stick and brick standpoint in Florida where the markets are doing record levels, most builders are at least trying, if not accomplishing, record levels. There has been escalating costs in Florida. There has been pretty good luck at passing most of those costs on in that market. In the Midwest though, one thing we really didn't talk much about is, as we have done these significant promotions, such as employee pricing, we have had subs and suppliers participate in that and reduce their costs for certain periods of time to help us in those efforts. But the biggest [indiscernible] of the costs still been land and other ones are more market driven based on roof styles in Florida, [indiscernible] depends on what the certain situation was.

I was thinking more I guess about the sticks and bricks, because I was under the impression, and maybe I'm wrong, that land -- the-- the cost of land was really only about 20 or 25% of your total costs of goods sold. Is it higher than that?

Depends on the market.

The market. Historically that was a great number. 20% was sort of the -- the rule of thumb. In the -- in the hotter markets you see that changing because of the things we talked about.

But if you do have your land prices, which in Florida, some people would probably say for a couple of years Florida land prices were probably escalating 10 to 20% a year. Not doing that now but it was the last couple of years. That does drive your costs up pretty good.

Right. Do you -- do you think you're going to do more optioning of land as we go forward then?

Well, you know, we -- that's market driven, in large part, not completely market driven, but, ideally you'd like to buy everything even your -- let me make sure I understand what saying. You're talking about buying lots from a developer on a takedown basis that's an option contract?

Yes.

I don't know. We'll do that where we think it can make sense for us but in many markets it is very, very difficult to sustain an operation unless you bring in a land banker and -- and pay a heavy premium to do that, and we'll just look at that.

One of the strategies we always have are premier locations.

And premier communities and we have always felt that one of our core competencies was in the development area, which is why we tend to be on the high end of percentage of lots but [inaudible] as among the other 20 or so public builders. But that's -- that's a strategic sort of -- sort of initiative of ours and the other thing is its in -- as in many markets there are very few competent third party developers, or there's just not not a lot of them. So, if you decide to take that route from a strategic standpoint it makes it somewhat harder to grow and manage your business.

We watch land purchases very carefully. As you probably know, we bought 220 of land in '03, we bought 270 of land in '04, '05 we bought 320 and we're estimating at this stage '06 will be about 250, and we also talked about, we've done a couple of joint ventures and joint venture also are in those numbers. So, we're trying to be more careful, manage the balance sheet, be very much aware of the changing market conditions, but with the strategy of focusing on premier locations, trying to make our subdivisions special there tends to be a lot of competition for those sites and so we have to deal with that.

Okay. That's helpful. Can I -- can I ask one last question?

Sure.

I'm not a big fan of leverage. But, I'm going to ask this as sort of an intelectual question anyway. When the stock's at book, which it -- it got even below book in the fourth quarter, and I know you bought some stock, your book value is basically, really hard assets, I mean it's houses under construction, and it's land that you purchased, so the book value as stated is pretty good or even understated level of real value. I'm wondering, why doesn't it make sense for you to put on $200 million of additional debt and recap the Company and then maybe pull down on the growth a little bit for a year or two to pay that off?

We talked about a lot of those things. Of course, when were into this year -- in '05 rather, we hoped to close 4,800 houses and we closed at 4,300, we own 18,000 lots. We have bought a lot of land. We need to get that land through our business. Get the profits into our company. Increase our net worth and those type things. So we're really just trying to manage it like that. We -- we think growing income over time is the best thing for shareholder value. We have been able to achieve a 20% plus ROE for the last few years. So we're focused on that. I mean, we definitely watch our stock price and watch where our capital goes. But also, I mean, having 3.5 million treasury shares when you have 14.5 million shares outstanding, I mean, I have a fair amount of treasury stock already.

And we're also large holders inside.

Yes. We don't --

We just think that to grow the Company long term, I know there's these unusual situations that have occurred recently, even though I think we've always been undervalued, but certainly recently more so than normal. We think long term our -- the public structure and -- and -- and the kinds of balance sheet management goals that Phil spoke to is -- is the better route for us.

And, you know, we're a strong double B credit. We want to be a very strong credit. Not saying we're trying to get to investment grade. But we want to maintain a good strong credit rating.

We'd rather go in that direction than away from it.

And have good coverage and as these markets slow down like we've gone through in the Midwest you need to make sure you have some financial flexibility and liquidity. So we've tried to play it a little bit close to the vest in that area.

Okay. Well great. I'll stop hogging the call and good luck in '06.

Thanks.

Thank you. Our next question is a follow-up question coming from Joel Locker from Carlin Financial.

Hi, guys, just wanted to check on the gross margins in Florida and the different divisions, I know you guys said 25 to 30% overall, but just kind of wanted to know what they were in Tampa, Orlando and West Palm?

We really don't give that information out by market. If you look at Florida, we've talked about for the last couple of calls being 25% plus. And -- and Florida the last couple of quarters has really gotten more towards 27, 28% range. There's really not a significant difference, Joel, in our Florida market, all of our Florida markets are very strong.

Right. And same thing for the Charlotte and Raleigh and D.C., you guys don't really differentiate there, just kind of ballpark?

Well, we've -- we've kind of given general information that the DC market last year in '05, the DC market -- margins were at 25% plus. Whereas the Charlotte/Raleigh market were more in the 21, 22% range. What we see happening this year, a little conservative in D.C., maybe DC comes down a couple of hundred basis basis points, but we're also hoping that Charlotte and Raleigh are going to go up a little bit. So there's probably not going to be a lot of difference in those margins in '06.

Right. And just I guess to touch on the last question of the previous caller, just maybe the land purchasing of 250 million, have you guys thought about maybe toning that down to like 150 or 200 and just adding to the share repurchases at all?

Well, this year we actually went in estimating 360 in '05 and we spent 320 which included purchasing Shamrock.

Right.

It's something we look at very close. But also --

I mean, we -- we -- we're -- we're running the business as -- as hopefully, as smartly as -- as we can. We -- we know -- we know where we are pretty much in '06. We've pretty much given guidance on '06. And obviously we'll update that quarterly. We've got our eyes on '07 and '08, and we believe very strongly in the land deals that we're looking to buy this year. And feel they are going to be critically important for us to continue to achieve our own goals and what we think is the best interests of the Company in '07 and '08.

Right. I guess just kind of taking the other side of the coin where a lot of the builders have five, six, plus years of supply now, whereas in ten years they are going to add three or four --

I think that these are great questions. One of the things that -- that -- that skews that metric as it relates to M/I, is that M/I's run rate has been in the low 4s. We're moving towards the -- the low to mid-5s. The other builders already have those -- those higher run rates, aren't maybe look -- look -- the point of it is we're investing heavily to grow, so it makes it appear as if our land position is a little longer than -- than it might be. If you assume a run rate of 5,500 to 6,000, all of a sudden, you can do the math on lots owned and lots under control, we're right in the middle of the pack.

Right. I mean just even if your run rate is 6,000, I mean your over three years of owned land is a significant size.

Well, except that one of the problems is -- is that we also have experienced a very significant slowdown in the Midwest, so we've got a little bit of a drag there. And when you think about, that 85 or so percent of the ground that we're buying today is all outside the Midwest so, I mean, the -- the -- you've got to sort of peel away and drill down on this stuff, it's not so much how much you're buying but where it is and what price and so forth.

Right.

And also if you look at it Joel, if you look at the estimated 250 purchases this year, again some of that is in JV, that's probably about 5,500 lots, and assuming we consume 5,000 it's not going up much this year, and then hopefully in '07 our run rate's up even more.

Right. Overall it's just kind of more expensive land just in Florida per lot and D.C. kind of a basis, whereas it's really not you're thinking 250 million is like a 1.5, 2 years of land -- it is just more expensive housing kind of, or areas I should say?

Yes. The price is going up in all those markets. You are right on the money.

All right. Thanks a lot.

Okay.

Thanks.

Thank you. [OPERATOR INSTRUCTIONS] Sir, there appears to be no further questions.

Well, thank you very much for joining us. And we look forward to talking to you with our first quarter. Thank you.