普爾特房屋 (PHM) 2005 Q2 法說會逐字稿

I would like to welcome everyone to the Pulte Homes second quarter earnings conference call. [OPERATOR INSTRUCTIONS] I will now turn the conference over to Mr. Jim Zeumer, Vice President of Investor and Corporate Communications.

Thank you, Christy.

And good morning to everyone joining today's call to discuss Pulte Homes financial results for the second quarter ended June 30, 2005.

As detailed in the press release Pulte Homes continues to report exceptional operating and financial results.

And with over 23,000 homes in backlog and strong order momentum the Company is in a position to deliver a full year of record results.

On the call to discuss Pulte Home results are Richard Dugas, President and Chief Executive Officer;

Steve Petruska, Executive Vice President and COO;

Roger Cregg, Executive Vice President and CFO; and Vinny Frees, Vice President and Controller.

For those of you who have access to the Internet a slide presentation will accompany this discussion.

The presentation will be archived on the site for the next 30 days for those of you who want to review at a later time.

As with prior conference calls, I want to alert everyone listening on the call and via the Internet that certain statements and comments made during the course of this call must be considered forward-looking as defined by the Securities Litigation Reform Act of 1995.

Pulte Homes believes such statements are based on reasonable assumptions but there are no assurances that actual outcomes will not be materially different from those discussed today.

All forward-looking statements are based on the information available to the Company on the date of this call and the Company does not undertake any obligation to publicly update or revise any forward-looking statements as a result of new information in the future.

Participants in today's call should refer to Pulte's annual and quarterly reports on Form 10-K and 10-Q for a detailed list of the risks and uncertainties associated with the business.

With all that said let me turn the call over to Richard Dugas for a few comments.

Richard.

Thank you, Jim, and good morning everyone.

Overall I feel comfortable saying that Pulte's second quarter results were outstanding.

There are a few key areas that I'd like to highlight however, as I feel they reflect success under the long-term strategies we've been articulating for the past several years.

We sold 26% more homes in the quarter than we did last year.

Why?

Because we had the land pipeline and entitlement expertise to open 17% more communities than last year.

As important we now control 365,000 lots, so we can continue opening new communities over the course of this year and beyond.

Some who follow this industry believe you can just walk down the street to a local land supply company and buy the lots you need for next year.

That's just not the case, however, so we view our diversified land position as a critical asset.

It must be noted that we have assembled this great land position while maintaining a strong and conservative balance sheet which is a hallmark of Pulte and one that we believe is critical to delivering long term success in home building.

One last pint about our land pipeline.

It is likely the most diversified land position in the entire home building industry, whether it's the 45,000 plus lots we control in the northeast, the 75,000 lots we control in Florida, or the more than 100,000 lots we control out west, these are positions that have been established over many years, so the land costs are reasonable, the positions are deep, and the locations are excellent.

Our strategy is to invest consistently over the quarters and years with an eye toward maintaining a balanced land position across the country.

Our diversified position serving a broad array of markets and customers is also becoming more appreciated in terms of the offensive and defensive benefits it provides.

As Steve will detail in a few minutes, overall housing demand certainly isn't up 26%, nor is it consistently strong across all markets.

As it has been throughout history, demand is stronger in some markets than others, and it's stronger today in some markets than it was yesterday, and it is weaker in some markets today than it will be tomorrow.

As an example, the strength of our market positions in the East are more than offsetting any demand softness we are seeing in the Midwest.

It wasn't that many years ago when the reverse was true.

It's not just markets but also customer segments.

We have yet to see a market that hasn't benefited from the introduction of the Del Webb brand.

Strong markets have seen incremental growths, while softer markets can experience a nice pickup in sales.

Our Bella Trae community in Orlando, and Celebrate community in northern Virginia have experienced incredible demand since opening recently, while our new Del Webb community in Brownstown, Michigan has several thousand names waiting for its opening later this year.

Pulte's leadership in the active adult segment through our Del Webb brand and Del Webb's ability to help us drive our long-term earnings growth cannot be overemphasized.

It is important to recognize that the strength of our recent order pace is also supporting Pulte's shift toward more build to order and away from the spec builder model we operated under in several markets.

At the end of the second quarter we averaged only one-half of finished spec home community across the country.

That is a phenomenally low number for Pulte or for any other builder.

Strong orders, fewer specs, and more than 23,000 houses in backlog are all important factors as we work toward implementing more of a planned approach toward construction.

As most of you know our Divosta operation in Florida is the poster child for planned production with its 47-day build cycle and consistent deliveries across the week, month, and year.

The visibility associated with having a longer backlog is really critical to successfully transitioning to planned production.

All of these efforts feed back into Pulte's goal of operational excellence and business simplification whether it's floor plan reductions, value engineering, specifications optimization, or reduced cycle times we see great opportunities to drive better and more consistent financial performance.

We get the question all the time about how we can drive better financials when price appreciation slows.

Simplification is one of the critical pieces to answering that question.

Stay tuned for more on simplification in the coming quarters and years.

Let me conclude with a comment that I've made before.

We think that going forward success will be more and more about company-specific strategies, tactics, and execution, and not all builders will perform the same way.

Strategies, tactics, execution.

We are confident that Pulte Homes has the ability to deliver on all three.

Now, let me turn over the call to Roger for more details about the quarter's results.

Roger.

Thank you Richard and good morning.

As our earnings release highlighted Pulte Homes had another outstanding quarter of financial and operating performance.

The second quarter domestic home building order rate posted approximately a 26% increase over the second quarter last year as we reported earlier this month.

Revenues from home settlements for Pulte Homes domestic home building operations increased approximately 32% over the prior year quarter to approximately $3.2 billion.

Higher revenues for the period were driven by an increase in unit closings of approximately 20% on an increase in the community count of approximately 17% versus the same quarter last year.

The average sales price increased approximately 10% versus the prior year quarter to an average of $310,000.

The increase versus prior year results are primarily from increased product prices and an overall volume driven improvement in product mix and geographical market mix.

In the second quarter land sales generated approximately $58 million in total revenues which is an increase compared with the previous year's quarter of approximately $2 million.

Domestic home building gross profits from home settlements, including home building interest expense for the quarter, increased approximately 42% to $751 million.

The second quarter domestic home building margins from home settlements as a percentage of sales were 23.8% compared with 22.1% in the second quarter of 2004.

This increased margin conversion of approximately 170 basis points versus the prior year quarter is mainly attributed to product price increases and market and product mix shifts as well as our ongoing initiatives to improve operational efficiencies offset by material cost increases.

Home building interest expense increased during the quarter to approximately $41 million versus approximately 30 million in the prior year.

This increase is the result of continued additional funding requirements associated with the current and future volume growth of the business.

The gross profit contribution from land sales was approximately $4 million for the second quarter versus approximately 14 million in the prior year quarter.

Land sales transactions during the second quarter ranged anywhere from ongoing single-family custom lot sales to several larger land parcels associated with asset repositionings in select markets all in line with our land -- our local land acquisition and operating strategies.

The profit on land sales may vary significantly from period to period based on the timing of land sales and they are and continued to be an important part of our overall land acquisition strategies.

SG&A costs as a percentage of home sales for the quarter was approximately 8.5% improving approximately 80 basis points over the prior year quarter.

The conversion improvement versus the prior year quarter was a result of increased selling prices and better overhead leverage with the increased volume over the prior year period.

In the other income and expense category for the quarter the income of approximately $11 million is primarily the result of joint venture income generated during the quarter of approximately $22 million, offset by approximately $11 million in expenses that include the amortization of intangible assets, insurance expense, and all other miscellaneous expenses from the domestic home building operations.

Domestic home building pretax income for the second quarter increased 57% to approximately $499 million with pretax margins at 15.5% on total domestic home building revenues.

This represents an increase of approximately 250 basis points in conversion over the prior year quarter.

At the end of the second quarter our domestic home building operations had a backlog of 23,351 homes valued at approximately $7.8 billion compared to approximately just under 20,000 homes valued at 6.3 billion in the prior year quarter.

The second quarter pretax income from Pulte's financial services operations was approximately $15.5 million or an increase of approximately 7.2 million to the prior year quarter.

The increase versus the previous year quarter was primarily due to the volume related increase in originations which accounted for approximately one-third of the increase and the favorable interest rate environment experienced during the second quarter of 2005 when compared to the second quarter of 2004, which accounted for the balance of the increase during the quarter.

The shift in product mix towards the adjustable rate mortgage products during the second quarter of 2005 increased from approximately 42% of origination dollars funded from our warehouse line last year to approximately 48% this quarter and down from 52% in the first quarter of 2005.

Pulte mortgages capture rate of approximately 88% remained even with the same period last year.

Mortgage origination dollars increased in the quarter approximately 333 million or 22% when compared to the same period last year.

The increase in originations is the result of higher production volumes and a slightly higher average per loan amount.

Mortgage refinancings represented approximately 1% of the total unit originations compared to about 3% for the same period last year.

International operations posted a pretax loss of approximately $500,000 for the second quarter versus income of approximately 1.4 million in the prior year quarter.

Improved operating performance in Puerto Rico was offset by a loss in income in Mexico as a result of the amortization of approximately $2.7 million in the quarter of purchase price premium value assigned to house and land inventory related to the purchase of our minority shareholder's interest in Pulte Mexico.

During January 2005, the minority shareholders of Pulte Mexico exercised a put option to sell their shares to Pulte pursuant to the terms of a reorganization agreement dated at of December 2001.

The result of which Pulte Homes would own 100% of Pulte Mexico.

During the first quarter of 2005 Pulte purchased 60% of the minority interest and the remaining 40% was completed during the second quarter after final regulatory approval was received by an agency of the Mexican government.

As I've noted in our prior calls and repeat here once again this morning we continue to explore and work through various longer term strategic alternatives with regard to all of our international operations, and at this time we have no further update to provide to you.

Total corporate expenses for the second quarter were approximately $29 million for an increase of approximately 5 million versus the prior year.

The increases associated with higher net interest expenses in the current year quarter as a result of the increase in debt funding in support of the business growth in 2005 and beyond and in addition an increase in compensation-related expenses.

Income from continuing operations for the second quarter increased approximately 61% to approximately 304 million or $2.30 per fully diluted share as compared to approximately $188 million or $1.46 per diluted share for the same period last year.

Fully diluted shares were approximately 131.8 million shares for the quarter.

The lower income tax rate for the second quarter of approximately 37.3% was due primarily to the new manufacturing deduction established by the American Jobs Creation Act of 2004 and certain other tax planning strategies.

Moving to the balance sheet for the second quarter a review of the major changes versus the year-end of 2004 continues to be in support of the Company's growth initiatives.

We ended the second quarter with a cash balance of approximately $451 million, mainly attributable to the issuance in the first quarter of $650 million of unsecured senior notes.

The proceeds were used to repay the indebtedness on the revolving credit facility and for the continued investment in the growth of the business the balance of this year.

House and land inventory increased to approximately 8.7 billion or an increase from the beginning of the year of approximately $1.3 billion, which is in support of the 2005 and beyond planned growth opportunities.

Of the $1.3 billion increase, approximately 67%, or $900 million, is related to home construction in progress to include house and land related to house.

The balance of the increase or approximately $400 million, is related to land acquired, under development, and held for future development.

Land held for sale was approximately $183 million as of the end of the second quarter, a reduction from year end of approximately 48 million.

Investments in unconsolidated entities of approximately $242 million at the end of the quarter are mainly attributable to our investments and participation in various strategic joint ventures that purchase, developers sell land and homes, supply and install building materials and components in certain markets in the United States, Mexico, and Puerto Rico.

Included in the other asset category of the approximately $908 million for the second quarter are major items such as receivables, prepaid expenses and deposits, capitalized pre acquisition costs, and net fixed asset of approximately $699 million.

The category also includes all other miscellaneous assets for the remaining 209 million from the corporate home building, international, and financial services operations.

At the end of the second quarter the Company's debt to total capitalization ratio was approximately 40.8%, and on a net basis was 37.6%.

This was in line with our expectations for the second quarter as our debt issuance in the first quarter was anticipation of the investment opportunities and funding requirements through the balance of 2005.

We continue to maintain our goal of managing a disciplined, conservative, and financial balance sheet while investing for the future growth of the business with the goal of creating greater shareholder value.

Pulte Homes shareholder equity for the quarter increased to approximately $5.1 billion with a return on average shareholder's equity for the latest 12 months of approximately 27%, an improvement of approximately 500 basis point versus the same period last year.

Pulte Homes' return on invested capital for the latest 12 months increased to approximately 17%, an improvement of approximately 300 basis points over the same period last year.

In addition, under the Company's authorized $100 million share repurchase program, 115,000 shares were repurchased during the second quarter.

Year to date the Company has repurchased a total of approximately 285,000 shares.

Under the authorization to date we have repurchased a total of approximately 1.5 million shares for a total of approximately $58 million.

We also announced a 2-for-1 stock split to be effected in the form of a 100% stock dividend.

The additional shares will be distributed on September 1, 2005 to shareholders of record as of August 15, 2005.

The effect of the stock split will be reflected in our third quarter financials.

Additionally we announced an increase in our quarterly dividend by $0.03 per share, or 60% on a pre-split basis, from $0.05 to $0.08 per share.

The quarterly dividend of $0.04 per share on a post-split basis will be payable October 3, 2005, to shareholders of record as is of September 26, 2005.

Now looking ahead as permissible under the SEC Regulation FD guidelines we offer the following guidance on our current expectations for the third quarter of 2005.

Unit settlements in the third quarter of 2005 are projected to increase approximately 22 to 24% over the same period last year, driven primarily by the growth of additional volume across most major markets.

Average selling prices from closings in the third quarter are estimated to be approximately 8% above the third quarter of 2004.

This projection is primarily being driven by product and geographical mix from homes anticipated to be delivered during the third quarter from backlog.

Gross margin performance from home settlements as a percent of sales for the third quarter is anticipated to be approximately 40 to 50 basis points above the third quarter of 2004.

This is dependent upon the product and geographical mix of the homes delivered.

We are projecting land sales in the third quarter to be approximately 1 to $2 million.

As mentioned in the past, land gains may vary significantly from period to period based on the timing of the land sales.

As a percentage of sales SG&A is expected to improve over the third quarter of last year by approximately 50 to 60 basis points as a result of better overhead leverage associated with the continued volume growth of the business and increased selling prices experienced over the past year.

In the other income and expense category for the third quarter we are projecting approximately 6 to $7 million in income attributable to joint venture income offset by other net operating income and expenses.

Given no material change from the current and short-term projected interest rate environment or a significant shift in consumer mortgage product preference, pretax income in our financial services operations is expected to be approximately 15 to 20% above the third quarter of 2004.

In the third quarter international operations are anticipated to be a break even to a slight profit for the quarter.

Total corporate expenses are projected to be 4 to $5 million above the third quarter of 2004 expenses.

This increase is mainly attributed to higher compensation related expenses and interest expenses associated with the higher debt levels in the quarter, all in support of greater unit volume growth.

We are projecting the effective income tax rate to be 37.3% for the third quarter of 2005.

Third quarter, earnings per share from continuing operations are estimated to be in the range of $2.60 to $2.80 per share.

This earnings per share number is calculated based on approximately 132 million fully diluted shares and is based on a pre stock split basis.

As we highlighted in our press release we are raising our outlook for the full year of 2005.

Our earnings target for the full year of 2005 earnings per share from continuing operations are now anticipated to be between $10 and $10.50 per share.

This now projects our earnings per share from continuing operations growth rate to be over the full year of 2004 in the range of 30 to 37%.

Our estimated settlement units for the full year are in the range of approximately 45,500 units to 46,000 homes to be delivered in that period.

Earnings per share estimates are based on 131.8 million fully diluted shares and is again based on a pre-stock-split basis.

Once again, I want to repeat that the announced 2-for-1 stock split will be reflected in our third quarter financials and the guidance I outlined here is all based on a pre-stock-split basis.

I will now turn the call over to Steve Petruska for a few specific second quarter comments on operations.

Steve.

Thanks Roger and good morning everyone.

From orders to deliveries second quarter operating results and trends for our domestic home building operations remain very positive.

For the quarter we operated from a total of 649 communities which is up 17% over the second quarter of 2004 and up slightly from the first quarter of this year.

There are two messages here.

Entitlement delays, environmental challenges, weather, inspections, and physical development are all potential bottlenecks that make it a challenge to get new communities open.

The silver lining is is that the system limits supply and minimizes the risk of a glut of new lots from hitting the market.

Further today's operating environment provides a competitive advantage to Pulte as we have the expertise and financial capacity to work our way through the entitlement process.

Our expertise in monetizing land assets for land sellers is as important as our checkbook when it comes to buying great land.

As you read in our press release Pulte's domestic home building operations delivered solid results for the quarter as closings increased 20% to more than 10,000 homes.

Sign-ups for the quarter were equally impressive increasing in value up 33% over last year to $4.4 billion and in units up 26% to over 13,500 homes.

Both of these numbers attest to the strength of the housing demand and to the success that Pulte is having targeting the right buyer segments with exceptional communities and homes that meet the buyers' needs.

As Richard noted, unit housing demand is not up 26%, but Pulte's business is.

As a result of the continued focus on consumer groups in all markets.

Segmentation works.

Now for a more detailed look at our second quarter results.

Second quarter unit sign-ups in northeast remained very strong increasing 43% over the same period last year and matching the gains we saw in the first quarter of 2005.

The story in this region from northern Virginia to New England remains the same.

The supply of new homes is constrained, demand is all but assured, so our ability to increase community count by 17% enabled Pulte to significantly increase sign-ups for the period.

We control more than 45,000 lots throughout this region which gives us the largest exposure of any builder to these vital markets.

With an increase in unit sign-ups exceeding 50%, the southeast remains strong and in certain markets is showing signs of acceleration.

For example, Charlotte doubled it business over the last year on roughly the same number of communities.

Charlotte should continue to deliver great results as they have just broken ground on the newest Del Webb community, Sun City Carolina Lakes.

Once again, I should also highlight Sun City Hilton Head, which more than doubled its business for the quarter, recording over 380 new orders in the second quarter.

Our business in Florida also remained extremely strong posting a 51% gain compared with the second quarter of 2005.

Orlando, Tampa, Jacksonville, Ocala, and our Divosta operations also posted double-digit gains.

In the Midwest the value of diversification is very evident and strong results in Illinois and Minnesota and Indiana are offsetting the tough marketing conditions we continue to see in Michigan and Ohio.

The resulting 18% increase in sign-ups for the quarter is certainly very positive.

I would note that even here in Michigan, which is arguably one of the softest economies in the country, we've had camp-outs in four of our recent community openings.

So even when overall demand isn't as robust he right communities in the right location can still draw a crowd.

I said it already today, but I'll say it again, segmentation works.

Our central region also showed strong order rates in the second quarter as sign-ups increased 43% over last year.

Sign-up growth in the quarter was primarily driven in Texas where we delivered increased orders in each of our markets.

As I have talked about on prior calls we continue to transition our Texas and Colorado operations into some stronger land positions that we feel offer better margin opportunities.

The repositioning is going well.

Out west, sign-ups were up 4% for the quarter while the order rate is certainly respectable, I think the numbers understate how strong demand is in the region.

Our operations in Arizona, California, Nevada are being -- being very careful to balance very strong demand throughout the area against price appreciation, construction cycle times, and restrictive land environment.

Arizona in particular is managing sales pace to achieve the right balance.

Quite frankly we are able to sell more homes but our production capacity in Arizona is our primary focus today.

Company-wide our cancellation rate for the first quarter was approximately 15% which is on par with last year and is is in our historical range of 15 to 20%.

We ended the quarter with just over 4900 spec homes in production which is 24% of the total homes under construction.

As a percentage of all houses under construction which is how we measure our spec position this is down about 1.5 percentage points from last year.

Of the spec houses in production only 360 of those homes are at the finish stage, which is down almost 50% from the same period last year and represents about one-half of finished spec home per community.

Our inventory of unsold homes is at a healthy level and we continue our focus on selling out in front of ourselves to drive a more predictable production model.

With that let me turn the call back over to Jim.

Thank you, Steve.

I want to thank everyone for your time and attention on the call this morning.

As appropriate we are now prepared to answer your questions.

So that everyone gets a chance, participants will be limited to one question and a follow-up after which they'll have to get back in the queue.

At this time we'll open the call to questions.

If you would explain the process.

[OPERATOR INSTRUCTIONS] And as Mr. Zeumer did state please limit your questions to one question and one follow-up question.

Your first question comes from the line of Rick Murray with Raymond James.

Good morning, guys.

Nice quarter.

Thanks, Rick.

I guess one quick question I had, kind of a housekeeping item.

Maybe you could help us understand a little bit what caused such a big deviation in the SG&A line relative to your guidance, I think the way we looked at it we came up with a number of about $30 million give or take better than where you had guided to and I was just curious what caused that large of a move?

Rick, this is is Roger.

We've got a couple of things.

We're putting a lot more focus internally in the organization to watch our spending ahead of community openings, so a lot more effort is there.

Start-up cost are lower, advertising was lower, and compensation-related expense was lower as we continue to really focus on the operations as we get more efficient trying to balance again what we're doing with the operation on the growth side.

Thanks.

And the other quick question I had was, where do you see your strategy at this point with respect to land purchases?

And I guess just try and frame that within the context of one of your competitors who yesterday noted that they plan on significantly scaling back their land purchases at this point.

Rick this is Richard.

I'll take that.

Frankly with a 26% unit order growth rate it's hard for to us see that the environment out there is still not very robust.

So I think you're going to see a consistent strategy from Pulte that we've articulated recently in that the vast majority of our capital is going to go into growth of our business on the land side with some balance towards share repurchase, as you've seen us do a little bit more recently, but frankly, overall we're going to continue to operate within the 40% debt to cap range.

You've seen us come in again with a very good and conservative number this quarter so I wouldn't look for a material change.

However, I'll reemphasize that if we do see a change we'll adjust our strategy.

We just haven't seen it.

Thanks.

Your next question comes from the line of Ivy Zelman with CSFB.

Hey, guys.

This is Justin Spear on for Ivy.

I had a quick question.

In terms of your margin expansion is there any way you can kind of break out what you think the price appreciation represented of that margin expansion versus efficiencies?

Yes, Justin.

This is Roger.

Again, if you look at -- we're looking at time periods here for second quarter against second quarter last year, and if you actually look at kind of what the material cost increases have been, relative, you've got to go back almost six months, sometimes nine months for those homes that are delivered that are in backlog being constructed and then comparatively speaking going back again a year then back six to nine months from that as well.

Roughly I'd tell you of the sales price what we end up seeing is probably about 30 to 40% of that actually falling to the margin line, offsetting the cost increases which probably represent anywhere in between 60 to 70% on average.

That's roughly it.

The operational side again from cost savings on the purchasing side, certainly under pressure from the commodity cost increases that we've seen and the labor cost increases we've seen over that time period as well but I can tell you we're still making very good progress on the national side on material purchases and that type of thing.

So we still feel pretty good about our efforts on that side of it but certainly not as much as we're seeing -- or we hope to see fall to that line given the commodity price increases really driven by the world markets.

And also, thank you for that color, also in Texas in the fourth quarter of last year you mentioned that you were moving away from the competitive entry level buyer.

Just wanted to see and hear how that's impacting your business there and kind of what your margins are doing relative to corporate level.

Justin this is Steve.

I'll take that one.

We continue to reposition the business so that we go after some different consumer groups throughout all the markets that we're in, in Texas.

What I would tell you is is that the repositioning is going well, like I said in my scripted comments, but at the same time, it takes time.

You have to go out and buy the land.

We have moved to a more development model.

We've got some very large pieces of land under construction, so currently in 2005 we've seen very little impact to our margins.

It's really, we're looking at 2006 and beyond where we think that we're going to start to see some of the upside that we're expecting to see out of Texas.

One follow-up.

In terms of your ARMs, did you guys break out the interest only percentage of ARMs?

Let's see, Justin, you're really asking within our ARMs, what percentages really related to only the interest only?

Yes, sir.

Okay.

Certainly.

With our normal mortgage production statistics that Roger quoted, he had quoted at about 48% of our funded originations were ARM products.

About 63% of those ARM products were interest-only.

How does that compare to the prior year?

And that's slightly ahead of the prior year, and that's really the trend that we've been seeing.

Thank you very much.

Your next question comes from the line of Carl Reichardt with Wachovia Securities.

Can you give me the split between owned and optioned lots please?

Certainly, Carl.

The trend over the past several quarters has been 45% owned, 55% optioned.

So of the 365,600 lots that we control those percentages are, in fact, the same for our second quarter 2005.

So we own 45.5%, and we've optioned 54.5%.

Great.

Thanks.

And then a broader question, if you're moving more towards build to order model, your spec count finished specs are very low.

Does this mean that cycle times are therefore increasing, and does that mean that the impact of raw material prices, whether they go up or down on your margins ought to have more of a lag effect than it would for other builders?

Carl, I'll take that one.

First of all, when you talk about cycle time, I would tell that you the cycle time for home buyer in backlog may be increasing but the cycle time to build the home will actually start to decrease because we'll be able to focus on only sold homes.

But that said, I think what your comment or what your question was trying to get to is are we concerned about having a longer backlog period and the impact on commodity pricing and how that may affect the cost associated with that home vis-a-vis when we sold it.

Is that really what the question was?

Yes, that is right.

I would tell you that there are certainly there's always risks as time goes by that maybe I could have gotten more for the home if I would have sold it right before I delivered it but we believe and what we're seeing is that there's advantages to labor costs associated with building the home because we can plan out our production a lot better.

We can schedule the resources in there, we can significantly bite into our own overhead nut,and it's just an operationally a better model to go by even given the risks of certain commodity price increases.

Carl, this is Richard.

I'll add just a bit of color on that as well.

We've got a lot of experience with this with Divosta, and quite frankly any incremental exposure you add I think we should keep in a perspective, we're talking maybe a couple of months here as opposed to doubling our backlog or anything like that, so it's a marginal increase but the efficiencies, as Steve pointed out, that we gain from scheduling, from contractors, being able to show up on time, et cetera, more than offset what we believe any incremental risk there is.

Again, it's not like we're going to carry a year's worth of backlog.

We're talking about moving it slightly from where it is a month or two.

Terrific.

I appreciate it guys, thanks a lot.

Your next question comes from the line of Greg Gieber from A. G. Edwards.

I wanted to follow up on that last question on cycle times, particularly with Divosta and Florida where if I understand what other builders are saying they're having trouble getting -- finding subcontractors.

That actually slows down their sales pace there which you do not appear to be doing.

Are you increasing -- how much is the cycle time for Divosta -- the length of time in backlogs have homes increased for Divosta?

Do you have any idea?

The length of time in homes in backlog?

The length of months that a home is in backlog before you start construction.

I would tell you actually it's probably decreased over the last 12 months.

So as we have gotten through the hurricane season, which was the one thing that was impacting our production.

So going forward we don't see any issue with that.

Divosta typically carries about two or three months worth of sold not starteds in front.

Greg, there's one thing to point out.

In Divosta in particular, they are -- we're vertically integrated down there so the contractor is our workforce.

Okay.

That's true.

One other thing, Greg, I'm sorry, it's Richard, to add to color there, we don't have to slow down our production in Florida because frankly, some of the long-term strategic sourcing agreements and the overall simplification initiatives that are largely in place in Florida as Steve has alluded to are working extremely well for us there.

And I would tell you that's a long-term competitive advantage we have relative to being able to deliver our backlog.

Clearly appears to be the case based on your numbers.

You said your community count increased about 17% year-over-year in the second quarter.

Could you give us some guidance to what you expect the year-over-year increase to be during the second half and then sort of what you're planning based on your lot pipeline for 2006?

Sure, Greg this is Vinny.

If I could give you some statistical points, the guidance that we had given was a 10% increase over where we ended last year.

We ended last year at about 626 communities.

And for the second quarter we had 649 active selling communities.

Getting that 10%, that's about 3.7% over where we ended in the fourth quarter of '04.

We think that we will continue to kind of open up communities on a pro rata basis over the remaining third and fourth quarters to achieve that goal that we had set for ourselves.

Then, Greg, I'd add that for 2006 we look at the same 10 to 15% growth in community count.

Understand that land investment and community count don't necessarily parallel each other, when you look at a Carolina Lakes project that can control 5 or 6,000 lots, and we call it one or two communities, it may have a couple of different price points, versus a 50-lot community that you buy for $10 million in the northeast.

So the community count thing can really get distorted when you look at the investment, but we look at a 10 to 15% growth in community count for 2006.

Your next question comes from the line of Joel Locker with Carlynn Financial.

I just wanted to ask about July sales and see how they were trending, or if you could give us any color on July sales versus say, last year in 2004.

Yes, Joel, this is Roger, we don't talk about the current quarter in the current quarter so I'm sorry we can't discuss July.

All right.

Thanks a lot.

Your next question comes from the line of Michael Rehaut with JP Morgan.

A couple of questions here.

First, just following up on Florida, actually from the demand side, had great growth there.

I think you said 51% in the quarter.

Other builders have talked about Florida as a region where they've slowed sales to match production.

Given the growth that you've had do you feel that you're gaining share in some of the big -- Orlando, Jacksonville, et cetera?

And how is that positioning yourself, if any, in terms of better efficiencies?

Michael, there's no question we're gaining share in Florida.

Secondarily, I would continue to point, if you want to look to the future, at our strong lot position that we have.

I mean, both Richard and I mentioned that we control about 75,000 lots in Florida.

So certainly as we play into a planned production model in Florida, our conversations with our trade base, obviously as Jim pointed out it's vertically integrated with Divosta, but even with our outside trade base we point to that land position and we point to our sold house position as a way to garner trade resources to Pulte's job site.

And that's having a very favorable impact on our ability to produce homes in Florida.

That's great.

Thank you.

And in terms of raw materials, I think you said that you estimated that during the quarter, it offset your pricing gain by about 60 to 70%.

What are you seeing currently in terms of those trends given that I guess the raw materials really for this quarter were reflecting the last four to six months?

Have any lumber or any other areas stabilized, and do you see a similar impact for the rest of the year?

Yes, Mike.

We're certainly trying to stay ahead of it in the markets where pricing power is still available.

In some market it's not, of course, so you end up with a lot more pressure from the raw material side.

From lumber you started to see that come down this year.

I think you've got the seasonal increase here in the summer months because people are building decks, they're putting more pressure on the demand side of that, but that's typical for this time of year.

Some of the other products out there, certainly we're seeing price increases, and pressure there as well.

Oil-based product as those prices have gone up, certainly pushing in transportation costs, certainly pushing in, then cement costs as well, but again we feel that we're doing a pretty good job with the price side of it exceeding the cost side of it.

It's hard to say exactly where we are in the pricing margin improvement, but I would tell you that I think we're probably pretty close to the same range we have been.

Again, trying to capture that range of 30, 40% to the margin line.

Your next question comes from the line of Stephen Kim with Smith Barney.

Thanks.

Congratulations on a great quarter.

Thanks, Stephen.

Wanted to follow up, if I could, on your SG&A question.

Certainly you've made great strides here, and obviously leveraging the volume is a primary factor there.

Obviously, though, this doesn't look like it's going to stop in the third quarter, given the guidance you've given on volumes and so forth.

It certainly looks like you might have the opportunity to continue to leverage that.

However, even if I just assume your guidance that you've given in the third quarter, then assume that your SG&A ratio in the fourth quarter is is just basically where it was last year, I'm coming to a yearly SG&A ratio that's down about 40 bips and basically down to the lowest level I think I've ever seen, going back, boy, all the way back to the -- I think to the 80s.

So just trying to figure out what is a comfort level that you guys have for SG&A as sort of a normalized level going forward, like '06, '07, that type of time frame.

Well, Stephen, this is is Roger, we're certainly right now not projecting, I think when we gave guidance for the three-year period we were looking for improvements in that every year.

Certainly you know when you raise your selling price and you have pretty much a constant dollar amount the percentage winds up decreasing just on the pure math of it.

That's a good part of it.

Also a good part of what we're looking at for how we run our business is to be smarter about it.

We've invested pretty heavily in the quality side.

That's important to us.

Also for the things we do for the growth side on the start-up costs.

All these things that we're looking at a lot harder these years, and especially this year to drive more efficiency to the bottom line so those are the normal things that we're doing for this year.

Again, I'm not going to project '06 and '07 at this point.

So, in other words, I guess you're saying that your SG&A ratio that you're seeing this year is a level that you can continue to work from, however?

Is that the sense I'm getting from you?

Steve this is Richard.

I think the answer to that is time will tell.

We certainly hope so, and our goals are to do that.

Sounds like we have a little interference.

Can you still hear me, Steve?

I can hear you fine.

Sorry.

We had agent interference on the phone.

What I would say is we certainly hope so and we're working on improving it.

One comment I'd like to make is we do an enormous amount of postmortem work on our performance and frankly, as a management team looked at '04, we think we had some opportunity to do a little better job and you're starting to see a little bit of that as we get into '05.

However, I want to just caution everyone that we're going to continue to invest in people resources to meet our growth goals and frankly, when you ask me what I worry about the most I continue to consistently say people to support our growth needs.

So I think we'll work on it, but we're going to be careful to project significant gains from here.

Steve, this is Steve.

I'll add one last thing to that.

Most of the dollars spent on obviously overhead are out in the field and most of those dollars are around people.

But you don't need the people.

The people needs really go with the community needs.

So sometimes we can get a little bit out in front of ourselves on people issues.

I think our operators out in the field have done a phenomenal job this year of really aligning their people needs with their community opening, and they're getting better at that every single day.

So it's certainly a base that we can work from, where we're at today, and as Richard pointed out we have opportunities for improvement but we're not going to chince on the things that are important to the business, and that's people.

Your next question comes from the line of Steve Fockens with Lehman Brothers.

Good morning, guys.

Two quick questions.

One, what was the lot count a year ago if you have it in front of you?

Sure, I can get that for you, Steve.

A number of lots, so this is June 30, 2004, 312,700.

Then the second quick question, if you have this, of the IO mortgages that you've done, what tends to be the duration of those, i.e. are they shorter term?

Are they five year or less?

Then are there any particular TCGs, or segments, or buyer types that those are concentrated in?

Steve this is Vinny.

Let me try to respond to some of the questions that you're asking there.

Very often when we answer some of the questions on IO, we've been using mortgage production statistics.

I'd like to change the focus of that a little bit and talk more about when you look at our second quarter customers, 10,194 of them chose different financing alternatives for purchasing their home.

And of that, and give you some insights that way.

For instance, 17% of our customers bought their home with cash. 35% used an adjustable rate mortgage product. 38% of them used fixed products.

And 10% of them really used outside lending sources, and we really do not have a good view as to what product they chose.

Now, I'd go further to tell of you the ARMs that 35% of our customers that we captured and we know were in our mortgage universe, 58% of them chose the interest-only option.

When you look at the type of products within interest-only, about 90% of them chose an interest-only product that had a term of equal to or greater than five years.

And it's also very interesting in our fixed products, the high percentage, 85% of them, chose a fixed rate product with a term of greater than -- of 30 years, I should say.

This is Richard.

I'll add one other thing.

Our LTVs and our FICO scores continue to be very consistently strong as they have been for the last couple of years.

Your next question comes from the line of Margaret Whelan with UBS.

Well done.

Great quarter again.

I have a couple of wrap-up questions really.

Richard, you're saying that your biggest challenge is finding employees, and what I'm just trying to figure out is as you lock out the Divosta model and the success you've had there and then Pulte Home Sciences, do you anticipate controlling more of the manufacturing process yourself for the long term?

Margaret, I think that's possible but not a given, and frankly it's going to be largely driven by the sophistication of the trade base and the field.

We certainly have looked at the success of the Pratt venture which I would tell you has been nothing short of spectacular for us.

Not only financially but probably more importantly the competitive advantage we have to get homes built in Phoenix and in Vegas right now.

We're looking at that around the system.

However, I think it's important to point out that we can't have one size fits all because in certain markets the trade base is not aggregated enough to where we could either make an acquisition or get into more of a vertical integration model.

Steve Petruska just got back from one of our area President's meetings and they spent almost the entire day talking about production capability in total and the local operators are aggressively working on that in each of their markets so I think time will tell.

I'm not trying to dance around your question but it's tough to say we'll do a lot more because we're not sure how much there is to do.

More than anything else it's a function of the dynamics within the market and the sophistication of the subcontractor base?

Is that it?

That's exactly right.

We're really looking at it hard everywhere.

Okay.

And to that point, what percent of your sticks and bricks that you're buying do you see an opportunity to buy at a national level versus regional or local?

Margaret I'll take that one because we continue to break down the things that are in the house, and every day we see new opportunities.

At the end of the day, of the sticks and bricks, let's just use a broad number and say that makes up two-thirds of the total house cost, and the labor component makes up a third, although sometimes even our contractors where we bundle those together have a difficult time telling us which is which.

But we'll go with the two-thirds, one-third.

Of the two-thirds, of that 66% of the house cost items, we think that there's probably up to 75 to 80% that we can some way have a national contract with a sourcing agreement on those items.

There's still going to be about 20% of the sticks and bricks things, 20 to 25%, that are going to be locally or regionally negotiated, but mostly for us we're looking at two things.

Can we leverage a buy on it, that's always important, and number two, can we make sure we get the stuff, because today, when you're trying to ensure the production capability of our operations, the ability to source material is as important as getting a great price on the material.

Your next question comes from line of Lorraine Maikis with Merrill Lynch.

Good morning this is Ken Zeener in for Lorraine.

Focusing on segmentation within your markets, first can you describe order trends in your interface communities in the northeast destination properties in the south?

Second, kind of compare those order trends that's in the market to your more traditional.

Ken this is Richard.

I'll try to make sure I understand your question.

In terms of order trends in the Midwest and northeast, did you say specifically destination properties there?

Right, or your in-place ones and how those communities are tracking compared to your more traditional.

Okay.

I assume you mean in the active adult sector, or not necessarily.

Not necessarily.

Just within the same region, if you're having a lot stronger success with the--?

Yes.

Well, let me just try to give you a little color commentary.

On specifically our active adult business we've got the in-place retiree versus the destination retiree, and we continue to experience equal strength in both markets.

As Steve pointed out active adult sales in Hilton Head and Carolina Lakes, we're just breaking ground, are excellent.

Specifically on geographies, I think the numbers speak for themselves that we reported.

The Midwest was a little bit soft in Michigan and Ohio.

But good in the remaining regions.

The northeast is plain strong everywhere driven mostly by our ability to open communities.

So I wouldn't say we're seeing a significant shift in order trends at all.

It's very positive.

Then how quickly, looking within any given market, how quickly are you able to change your intended segmentation?

For instance, if more entry level is slowing down but your active adult is quite a bit stronger, what is your tee time on change?

This is Steve, I'll take that question.

Typically we don't change who our targeted consumer group is, because we can't the land location, which really drives the consumer segmentation model for us, is not real movable.

There are things that we can do to enhance our position, and there are certain consumer groups that behave alike, so that for instance, if we saw slower absorption in a community that we had targeted at TCG Forbes, for instance, we might be able to add a product or an enclave within a large scale community that might might target TCG 2's because they act a lot like like 4s and they're attracted to similar locations, but for the most part because the land is not movable you've got to do your homework up front, and we do, and we stick with the targeted consumer that we go after initially.

Your next question comes from the line of Dan Oppenheim with Banc of America Securities.

Wondering after your comments on the strength of Del Webb now if you can talk about your opportunity growth for Del Webb versus the traditional business and how those -- where the growth is in each area.

Dan, this is Richard.

We continue to have a little better than a third of our business focused on Del Webb and that's not changing.

However, the mix of communities around the system is changing dramatically as we wrap up some of the positions that we acquired back in 2001, the investment level and the number of units and communities are shifting really to a lot of the in-place retiree communities.

I would say for a lot of areas, and particularly I'll highlight the northeast, it's the lion's share of the growth because we think that's the best place to put our investment dollars.

As Steve mentioned we've yet to see a single Del Webb community we've opened that hasn't met or exceeded our expectations.

Thanks.

And then wondering about your comments in terms of the central region in Texas, with the order growth there, if you can just add a little more color on what you're doing to sort of change the strategy and get higher margins but also should we continue to expect the same type of order growth in the coming quarter that we saw this past quarter?

Well I won't comment on future order growth, Dan, just because we don't.

But, number two, in answer to your first question, really what we've done in Texas is we did not have a robust segmentation effort there prior to 2002, 2003.

And what we've really done is really get detailed in all the markets that we do business in and tried to identify larger scale land pieces that we could develop and entitle ourselves and move in multiple consumer groups into those communities.

That gives us the opportunity to buy a larger land parcel to make pretty significant play maybe with TCG 10 and Del Webb and augment that with several other TCGs other than the entry level positions that we historically had in Texas.

It spreads out a lot of the development costs to make our community unique across a very large number of lots keeping everything affordable.

It is truly our opportunity for growth.

We've probably seen most of this in San Antonio so far where we've grown our community count by about 100% over the last 12 months and our margins are terrific there.

So that's the model we're trying to take to Houston and to Dallas and to Austin.

Your next question comes from the line of Timothy Jones with Wasserman and Associates.

Good morning.

Two questions.

Three times you guys have had -- emphasized how strong the northeast is on this call, which is wonderful for you, but you may have seen an article in the Washington Post about two days ago talking about a major slowdown in Washington, D.C., in home prices and time to sell.

One of your competitors have mentioned around New York it's slowing, and one of my customers has said that Boston has slowed down dramatically.

Not exactly markets you're in, but around.

Could you comment on that why you're doing so much better, and have you seen that overall in the market?

Well, Tim this is Steve.

I'll comment on that.

Number one, I would just tell you to go back to the statistics and look.

What we've been able to do is get the communities open, and it's an increasing community count.

Number two, and to kind of get you specifically focused maybe on a single market, because I think that's the better example, is I'll use Washington D.C.

All land positions and all business in the D.C. market is not created equal.

So one builder who builds out in the periphery, out into even into the West Virginias, and the Fredericksburgs, and those type of things, is not the same as like a Pulte operation where we have really focused on staying close to the D.C. core, because the commute times in that particular city are horrendous once you get outside that D.C. core area.

And our operations have been very, very diligent in their segmentation work to go after the tougher to entitle land parcels that we believe insulate the Company in that market, obviously in good times they're very very good pieces of land, but in bad times or in slowing times it is still the best piece of land because people shy away from the peripheries first.

So that's really, going back to the whole idea of segmentation, and we believe that it's working very well for us in the northeast.

The other question is, would you expand on your comments -- comment that in Florida the trades have vertically integrated with Divosta?

What do you mean by that?

Divosta obviously has its own workforce, and nobody beats them.

I think they're the number one builder in the United States.

That's exactly what we mean.

What do you mean?

Does that mean you're hiring the builders for Pulte development?

Yes.

You are.

Right.

At the Divosta development--.

No, I knew you was in the Divosta side, but I'm talking about the Pulte side.

What do you mean by that?

Are you hiring them -- I know Divosta hires their own people, but are you doing that also for Pulte developments?

Tim this is Richard.

Divosta controls maybe a third, roughly, of our production in that state right now, and not all of those markets in Florida operate under the Divosta model.

What Steve is explaining is that we're migrating that across the state and going more and more to that.

So in the future, yes, you can expect more of our production to be done by vertically integrated employees.

It's not 100% across the state today but that's the model that not only are we taking the rest of Florida but we're taking to the rest of the country to the extent we can.

Your next question is a follow-up question from the line of Greg Gieber with A. G. Edwards.

I wanted to follow up on, I think it was Steve who commented that you think that of your material costs that 75, 80% of that you may be able to get a national contract for at some point in the future.

Could you give us your best guess as to what your current percentage is?

Best guess would be 15 to 20 right now that we've got a national agreement on.

Okay.

Can you hazard any approximation for what that sort of discount you get from these national contracts?

What, first of all, we sign a lot of confidentiality agreements, so I can't comment on that.

But mostly what we get and I'll reiterate on that is what we get as a supply agreement, which is very, very important to our business.

Your next question comes from the line of Jim Wilson with JMP Securities.

Thanks.

Good morning, guys.

Great quarter.

Wanted to go back to Vegas and my perspective is to try to look at how it's transitioned.

I know you don't want to talk about it any more.

That's what you said after first quarter.

But I'll ask a general question.

Can you give us a little color of how with the pricing, and I know it's in all of your communities, et cetera, that sort of the margin, call it pricing or margin, whatever you'd like to talk about shifted from middle of last year to late last year to back, if you will, to more normal now so that we can sort of see where the prospects might be going forward?

Because I'm guessing you're going to get some improvement off of a bottoming somewhere here in the recent margin trend.

Jim, I'll let Roger talk to margin trend in Vegas.

What I'll give you is just some very brief statistics.

We sold 1100 homes in Las Vegas in the second quarter.

Our business is very healthy there.

We have very, very little speculative inventory and the new order rates are exceeding expectations, quite frankly.

So as we mentioned in the first quarter, for us, it was a unique situation, it was isolated, it seems, to Pulte in that market.

We fixed that, and we're back in business.

Jim this is Roger.

On the margin basis, we didn't see a significant part of that margin actually come through in 2004, if you recall, we were raising prices in the early part of the year, and by the time we got to the third quarter we went back to the backlog.

So we didn't see the majority of that actually come through.

We did see a part of it come through, through the third quarter, it had been escalating coming through because of the material cost increases, and we were raising prices at the end of '03.

So we did see a portion come through.

Year on year I would say that it's slightly down because of the actions we took in the fourth quarter, but again, the market is very strong, as Steve had mentioned, so there's opportunity there for us on the pricing side going forward.

So, again, I would say that it's not dramatic, but it is down from where we were somewhat in 2004 to coming into this part of the year now.

So what you have in backlog now relative to the first half of the year fairly similar?

Yes, because of the action we took in the fourth quarter, so coming on here it would be somewhat consistent, yes.

Then the only other, separate question, but how many Del Webb communities do you have in total open across the country right now?

Jim this is Richard.

We might have to follow up and get you that exact number.

I'm not sure.

I'm going to say it's in the range of 40 to 50, somewhere in that range, and clearly headed up significantly from there.

I think we had mentioned on a previous call we had over 100 in process at some phase of entitlement et cetera, but when we started the acquisition I believe we were at about 15, and I think we're in the 40 plus range at this point headed up.

Your next question is a follow-up question from the line of Stephen Kim with Smith Barney.

Hey.

I guess I just wanted to try and delve in a little bit more on the interest only.

You said that 90% of your IOs were at -- equal to or greater than five years.

What percentage of them were were exactly five years?

That's a pretty precise number.

I know.

Well, you guys wouldn't give it to me unless I asked it on the call.

So here I am.

All right.

We follow you.

Okay.

It's going to be a minute.

We're calculating.

While you guys are working on that, I was wondering if you could comment on what you're seeing with respect to your production efficiencies.

Have you explored your opportunity to take some of these efficiencies, some of the initiatives you've done, and take them to markets that are starting up?

I know that you've generally utilized those in markets that are very large, like your Manassas plant outside of D.C. and so forth.

Have you explored how you might be able to take some of that and apply them to sort of lower volume situations, or is that just really not in the cards for right now?

Steve, I tell you, it's not in the cards right now.

But we're still, you've got to understand with the Manassas plant is that we're still in the exploratory phase of that.

It is still our first full production plant.

We are learning things every day.

We're increasing capacity on a month-to-month basis, and quite frankly we haven't put the pedal to the metal in that plant yet to be confident enough to take it to other places given the state of the environment that's out there.

If we had some major production issues going on some place and we felt like a plant would enhance our production capability, certainly we'd look at it.

But quite frankly the initiatives that we're pushing in -- on all fronts for production capability and throughout the country are serving us pretty well right now and it gives us the room to maneuver on the Manassas plant until we can figure it all out.

Stephen, if I could follow up with you on the interest-only five-year product, about 90 -- this is approximately -- 92% of our interest only products are the five-year product, the five-year term.

There are some seven-year, there are some ten years.

When you add them into it that's how it gets down to about 90% are greater than five years.

But predominantly it is a five one interest-only ARM.

Your next question is is a follow-up question from the line of Rick Murray with Raymond James ?

Hey, guys.

This question is for Steve.

I missed part of your comments on Las Vegas.

Did you give orders for the quarter in year-over-year trends?

I didn't give a year-over-year.

I just said that we've sold about 1100 homes in the quarter, which is pretty equivalent to what we did last year, maybe even slightly up.

Okay.

Thanks.

Yes.

Your next question is a follow-up question from the line of Timothy Jones with Wasserman and Associates.

Of the two-thirds of the Florida operations that are Pulte, not Divosta, what percent right now had their own workforce, are using the Divosta model?

0%, Tim.

Oh, you haven't started doing it yet.

No, sir.

We're in the process of rolling that out as much as we can across the country.

Oh, you're going to do it across is the country?

What other states do you intend to do this in?

Well, we're rolling out a more efficient production system across the country.

A vertically integrated workforce specifically is right now in Divosta and also to some extent in Las Vegas and Phoenix with our Pratt operation.

Those are the only two we have right now.

And as Margaret asked earlier, we're going to explore other opportunities for that but when I say rolling across the country I'm referring to our enhanced ability to produce homes through a simplified business model overall that Steve talked about.

So are you seeing -- I'm confused.

When you say about this trade, are you going to be vertically hiring people for the remainder in Florida, using that Divosta model, not to see efficiencies, but the internal workforce?

Are you going to be expanding that to your communities in Florida to all of them?

I'll go back to the same answer I gave Margaret, which is where we can we're looking at it but right now we don't see the opportunity to do it tomorrow.

It's a long-term process.

Each of our operations are evaluating it.

So time will tell.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers.

Gentlemen, are there any closing remarks?

This is Jim Zeumer.

I want to thank everybody for their time this morning.

If you do have any questions and follow-ups, certainly feel free to give us a call, and we'll look forward to talking to you as part of our third quarter comments later on.

Thank you Mr. Zeumer.

This concludes today's Pulte Homes second quarter earnings conference call.

You may all now disconnect.