Good morning, and welcome to the D.R. Horton, America's Builder, the largest builder in the United States, Fiscal Year End and Fourth Quarter 2013 Earnings Release Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to your host, Mr. Donald Tomnitz, President and CEO for D.R. Horton. Thank you, Mr. Tomnitz, you may begin.

Thank you, and good morning. Joining me this morning are Bill Wheat, Executive Vice President and CFO; Stacey Dwyer, Executive Vice President and Treasurer; and Mike Murray, Senior Vice President. As always, before we get started, Stacey?

Some comments made on this call may constitute forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although D.R. Horton believes any such statements are based on reasonable assumptions, there's no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and our most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. Don?

Thank you. In fiscal year 2013, we experienced significant improvement on our homebuilding operating results. Our investments in home in inventory -- homes in inventory, land, lots, and development positioned us to take advantage of a sharp increase in demand for new homes in the first half of the fiscal year. And we also benefited from rising sales prices as housing supplies struggled to catch up with demand. Our results from homebuilding and financial services were highlighted by $657.8 million of pretax income and a 10.5% pretax operating margin. Our strong pretax operating margin was driven by 310-basis point year-over-year improvement in our home sales gross margin to 20.8% and 100-basis point improvement in our SG&A expenses as a percentage of homebuilding revenues to 10.7%. The value of our net sales orders in fiscal 2013 increased 37% due to a 19% increase in homes sold and a 15% increase on our average selling price to $261,400. We experienced strong pricing throughout fiscal 2013 with very solid demand during the first half of the year. In the September quarter, our gross sales were up year-over-year by 19% in dollars and 3% on homes sold. Our cancellation rate increased to 31% during the quarter, resulting in a net sales increase of 14% in dollar value and a 2% decrease in net homes sold. Our fourth quarter sales reflect a moderation in demand that started in mid-May and lasted through September, as economic conditions remained sluggish and potential homebuyers adjusted to both higher mortgage rates and increasing home prices. However, we saw improved sales trends in October as our net sales orders and dollar value increased year-over-year and were higher than any month in the September quarter. We are now in the slowest seasonal sales period of the year, so our next good read on sales demand will be after the traditional spring selling season begins in February. We believe the housing market remains in a period of recovery. And our expectation continues to be that the pace of the recovery will vary across our local operating markets and will be closely tied to improvements in each market's economy, as measured by growth in jobs, household incomes, household formations and increases in consumer confidence. We have seen a significant increase in housing demand during the past 2 years, but demand still remains below normal historical levels across most of our markets, which leaves opportunity for further improvement. Pricing has recovered sharply in certain markets, but still has room to increase in many other markets. We have also continued to proactively control our rate of sales while raising prices in some of our strongest performing communities, to ensure that our sales pace and backlog align with our construction cycles, which have lengthened slightly. This ensures that our construction costs are certain before we establish the sales price of the home, which enhances our gross margins and profitability. Mike?

Our net sales orders in the fourth quarter reflected our pricing power across many of our markets and our increased mix of move-up buyers, as the value of net sales orders increased 14% and our average sales price increased to $276,800. The value of our backlog increased 33% from a year ago to $2.2 billion with an average sales price per home of $269,400, and homes in backlog increased 13% to 8,205 homes. Bill?

In the fourth quarter, our consolidated pretax income increased 104% to $202.8 million from $99.2 million in the year-ago quarter. Our pretax income as a percentage of consolidated revenue was 10.9%, an increase of 350 basis points from 7.4% in the year-ago quarter. Homebuilding pretax income more than doubled to $189.4 million from $85.7 million, and financial services pretax income decreased slightly to $13.4 million from $13.5 million. Net income for the fourth quarter was $139.5 million or $0.40 per diluted share compared to $100.1 million or $0.30 per diluted share in the year-ago quarter. Mike?

Our fourth quarter home sales revenues increased 40% to $1.8 billion on 6,866 homes closed, up from $1.3 billion on 5,575 homes closed in the year-ago quarter. Our average closing price for the quarter was $262,500, up 14% compared to the prior year, driven by pricing power and an increased mix of larger move-up homes. Our backlog conversion rate for the quarter was 69% compared to 76% in the prior-year quarter. For the first quarter of fiscal 2014, we expect our conversion rate to be around 65%, trending back down to a more normal historical rate. This also reflects our continuing mix shift to larger homes with longer construction cycles and delivering more built-to-order homes than in recent years. Stacey?

Our gross profit margin on home sales revenue in the fourth quarter were 21.9%, up 380 basis points from the year-ago period. 250 basis points of the margin increase was due to improving market conditions resulting in reduced incentives and higher average selling prices in excess of cost increases. 80 basis points was due to lower relative costs for warranty and construction defect claims as a percentage of home sales revenue, and the remaining 50 basis points of the margin increase was due to lower amortized interest and property taxes. Our gross profit margin on home sales revenue for the fiscal year was 20.8%, up 310 basis points from the prior year. 210 basis points of the increase was due to improving market conditions, 60 basis points was due to lower relative warranty and construction defect costs and 40 basis points was due to lower amortized interest and property taxes. During the fourth quarter, we recorded $5.9 million in land option charges for write-offs of earnest money deposits, and due diligence costs for projects that we do not intend to pursue. We also recorded $21.2 million of impairment charges related primarily to longer-term projects that we held through the downturn and recently decided to sell as is to redeploy the capital into more productive assets. Don?

Homebuilding SG&A expense for the quarter was $186.6 million compared to $145.9 million in the prior-year quarter. As a percentage of homebuilding revenues, SG&A improved 90 basis points to 10.3% from 11.2%. We continue to leverage our fixed costs structure while at the same time building our sales and production capabilities where necessary. For fiscal 2013, homebuilding SG&A expense was $649.9 million compared to $528.7 million in fiscal 2012. As a percentage of homebuilding revenues, SG&A improved 180 basis points to 10.7% from 12.5% a year ago as we made significant progress toward returning to our annual SG&A goal of 10%. In the first 2 quarters of fiscal 2014, we expect our SG&A as a percentage of homebuilding revenues to increase seasonally from our most recent quarter as we typically deliver fewer homes in the first half of the fiscal year than in the second half. Bill?

Since our active inventory exceeded our debt level, we recorded no direct interest expense this quarter compared to $4.9 million of homebuilding interest expense in the year-ago quarter. For the year, we expensed $5.1 million of homebuilding interest compared to $23.6 million in the prior year. We expect that our active inventory will continue to exceed our debt in fiscal 2014. The improvements in our home -- in our gross profit percentage, SG&A expense ratio and interest expense expanded our homebuilding pretax margin to 10.4% in the current quarter, an increase of 380 basis points from 6.6% in the year-ago quarter. Stacey?

Financial services pretax income for the quarter was $13.4 million, down slightly from $13.5 million in the year-ago quarter. This quarter reflected a more competitive pricing environment, whereas the first part of this year and the prior fiscal year benefited from unusually favorable market conditions, which produced higher-than-normal gain on sales of mortgages. 88% of our mortgage company's loan originations during the quarter related to homes closed by our homebuilding operations. Our mortgage company handled the financing for 53% of our homebuyers this quarter, with virtually all loans meeting eligibility requirements for sale to Fannie Mae, Freddie Mac or Ginnie Mae. FHA and VA loans accounted for 45% of our mortgage company's volume this quarter, down from 51% in the year-ago quarter. Borrowers originating loans with our mortgage company during the quarter had an average FICO score of 723 and an average loan-to-value ratio of 89%. First-time homebuyers represented 43% of the closings handled by our mortgage company this quarter compared to 53% in the year-ago quarter. Bill?

Since June, our construction in progress and finished homes inventory increased by approximately $312 million, excluding noncash items. We had 17,000 homes in inventory at the end of September, of which 1,300 of our homes were models, 9,000 were speculative homes and 3,000 of the specs were completed. Our average community count for the quarter increased 17% from a year ago. In our fourth fiscal quarter, our investments in lots, land and development totaled $552 million, of which $215 million was for land development, $183 million was to purchase finished lots and $154 million was to purchase land. During the fiscal year, we invested $2.6 billion in land, lots and development. At September 30, 2013, we owned 127,000 lots and controlled 54,000 lots through option contracts. 33,000 of our owned lots and 29,000 of our option lots are finished. We are very well positioned to meet demand in fiscal 2014 and 2015 with our 181,000 total lots owned and controlled. Stacey?

Our unrestricted homebuilding cash totaled $913 million at fiscal year end. During the quarter, we increased the size of our revolving credit facility from $600 million to $725 million and extended its maturity date to September 2018. At September 30, we had available capacity on our revolving credit facility of $663 million and no cash borrowings outstanding. The balance of our public notes outstanding at September 30 was $3.3 billion. At September 30, our homebuilding leverage ratio net of cash was 36.7%, and our gross homebuilding leverage was 44.6%. Mike?

Subsequent to year end, we acquired the homebuilding operations of Regent Homes for approximately $35 million in cash. Regent operates in Charlotte, Greensboro and Winston Salem, North Carolina. We acquired approximately 240 homes in inventory, 300 lots and control of an additional 600 lots through option contracts. We also acquired a sales backlog of 213 homes valued at $31.1 million. Don?

In closing, this quarter was D.R. Horton's most profitable fourth quarter since 2006, with $202.8 million of pretax income. The majority of our operating metrics improved on a year-over-year basis this quarter. The value of our sales, closings and backlog increased by 14%, 40% and 33%, respectively. Our pretax income increased 104%. Our pretax income margin increased 350 basis points to 10.9%. Our gross margin on home sales revenues increased 380 basis points. Our SG&A as a percentage of homebuilding revenues improved 90 basis points. Our average sales price increased 16% as we experienced pricing power in many of our markets and as our expanded move-up and luxury product offerings have received a very positive reception from our customers. Finally, we would like to welcome David Auld to his new position as Chief Operating Officer for D.R. Horton. David will oversee all homebuilding regions and will play a solid role in guiding our operations. David has been with a company for 25 years, and we welcome his extensive operating experience to our executive team. Congratulations, Brother Auld. We would like to personally thank all of our D.R. Horton team. You are executing our business plan superbly, which is why our company continues to perform so well with improving margins, profitability and returns, continue taking good care of our customers and outperforming in fiscal 2014. This concludes our prepared remarks. We'll now host any questions you have.

[Operator Instructions] Our first question today is coming from David Goldberg with UBS.

I wanted to first talk a little about mortgage underwriting in the market today. We've heard from a number of banks that we've seen -- that there are overlays that they are putting on FHA mortgages are loosening. And I want an idea if you guys are seeing any of that in your business. Obviously not necessarily in the FICO scores coming down at all, but do you see loosening with your clients, and do you think that's going to help us to kind of get into the selling season next year?

David, we've not seen any significant changes in the underwriting standards that are available to our customers. We have seen certain banks, which have had more restrictive overlays, now begin to make those overlays less restrictive so they match what's currently in the market. But in terms of an overall loosening, we're not seeing anything significant.

Great. And then my follow-up question, it seems like we've kind of hit this slow patch in the market and everyone -- it feels like most of the builders are general playing well in the sandbox and nobody's starting to discount really heavily. Do you think that if the slowdown were to continue, and just based on your historical experience, do you think if it were to continue into the selling season, do you think you would see more of your competitors start to discount, start to get more aggressive to drive sales volumes? Or you think everyone kind of realizes that might be kind of a zero-sum game at this point?

I don't think there's any question that will start with incentives if -- the pace continues into the strong selling season around Super Bowl Sunday. Currently, even though we were down slightly in terms of units in the quarter, we were still up 14% in terms of sales dollars. We think that's a great relationship. And currently, we're not overreacting because this is normally a slow part of the season. But we have plans in place coming January to make sure that we drive the right amount of the absorptions relative to our margins, because it's a balancing act. And we've got plans on a community-by-community basis, and I'm sure other builders probably will follow suit.

And in general, I think we'll see different activity from market to market, and that will depend largely on what the inventory levels are. In general, most of our markets' inventory levels are either low or imbalanced and to the extent that inventory levels are not out of line or higher than where demand is I think you'll see builders adjust their production schedules, to match demand, which then would not require as much incentives. But right now, we think we're on great position. We're up 14% in terms of sales dollars in the fourth quarter, and we're going to see what happens and we're going to adjust accordingly.

Our next question today is coming from Nishu Sood from Deutsche Bank.

I wanted to ask first about the soft patch that we've seen in demand since the summer. When it first unfolded, I think a lot of folks in the market were imagining since it was rate driven, at least partially if not significantly, that the historic pattern of the first-time buyer being harder hit would generally play out. And that was the perception. But as the soft patch has dragged down a little bit, it's become clear that it's a little bit broader based than that. I wanted to ask for your folks' thoughts on that with your special insights into the first-time buyer market. Is it just the first-time buyers that are principally what's driving this weakness, or what do you folks see?

I think it's applying across all product and price lines, to be frank with you. And I don't mean to date myself, but as I sat around and look at the people here, no one around this table can remember mortgage rates being higher than 6% or 7%. And I think one of the factors that we are dealing with, quite frankly, is most analysts and most young buyers, especially first-time homebuyers in the market today, are -- have been accustomed to low rates for all their lives. So I do know one thing: Rates are going to go up and we're going to have to deal with those on a go-forward basis. But I think rates going up will indicate that the economy is doing better. We're creating jobs, and I think that will be good for the economy and that will be good for us.

Great. And I also wanted to ask about -- in your product mix, you folks mentioned having had some success in some of your move-up in your luxury product. I also noticed that you mentioned the decline in your mortgage subsidiary in terms of the first-time buyer going from 53% to 43%. So I wanted to ask about your product mix strategy going forward here. I mean, obviously, you have shifted more towards the move-up buyer. Is that something you would expect to continue? And is that stat out of the mortgage subsidiary is that just an anomaly this quarter? Is that reflective of the products mix shift?

Well, clearly, we have expanded our Emerald and our upper price point, and we're getting very good reception in the marketplace from that. But be clear, we're expanding our business in all price points and all product lines, whether it be the low end, the mid-priced or the high end. And Stacey can speak more specifically to that.

Yes, and I think you are seeing that flow through in our mortgage company because they are primarily focused on our business. So the mix of their results is probably a decent indication of what we're seeing in the home buyer -- excuse me, in the homebuilder. Just as a point of reference, in Q4, the number of homes that we closed over $500,000 was just under 5% compared to 3% last year. But the dollars have grown a little more significantly, they are now 12.6% compared to 8.3%. But as Don mentioned, we do plan to stay very focused on the first-time buyer and the first-time move-up. So in terms of trying to get where that number's going, we don't have complete clarity.

And I would say also something driving that 53%, 44% relationship in terms of first-time buyers being down is that, as we expand that higher price point, you're dealing with a more second- or third-time buyer, and they're a little bit more familiar with the financial system, and a lot of those people drive their home mortgages, and they have other mortgage companies as opposed to just DHI Mortgage company that they've done business with in the past. So a lot of that has to do with their relationships in the marketplace as opposed to a first-time buyer who, in many times, has never dealt with a mortgage company.

From a longer-term historical perspective, historically, our normal percentage of our business that was first-time buyers was around 40%, 35% to 40% range. So we continue to move closer to that longer-term historical range, and our mix is really getting back to normal levels.

Our next question today is coming from Stephen Kim from Barclays.

I think a quarter or so ago, you guys were really the first to indicate that you saw -- you were witnessing some effect from interest rates on the business. And also, you were one of the first to talk about a bit of a shift in your land-buying strategy to really focusing on lots where you felt like you could recoup your investment relatively quickly. And particularly on that second point, I observed that your land spend this quarter, if you look at your land spend as a percentage of revs, it's kind of in the low side relative to your peer group, indicating that you've been a little bit more cautious in buying land than your peers. I was curious if you could comment on whether you expect land values to get incrementally more attractive over the course of the next several months. Or what in general your land-buying policy is today with respect to an eye for recouping your investment quickly?

As you know, Steve, land prices continue to go down very slowly and go up very rapidly. And as we have adjusted our land purchases, I believe the same is happening in the rest of the industry. And we're beginning to see somewhat more cooperation from our land seller today than what we were getting 6, 9, 12 months ago just simply because there's less demand in the marketplace today. And I think that will be reflective come the spring, depending upon how well sales go in the spring. But land sellers could -- will adjust accordingly. But generally speaking, land prices haven't come down, but they're a lot more flexible on terms, it seems like, than what they were 6 and 9 months ago.

And Steve, I think a little bit of the slower activity you saw this quarter certainly is reflective. When we see a little bit softer sales environment, then we certainly do adjust our spending. But it also is reflective of the fact that we built up our lot supply very nicely in fiscal '12 and the first half of fiscal '13. So we're in a very good position from a lot supply and really don't need to add too much here in the short term. So we have some flexibility in when we pick and choose to go make our investments.

As D.R. would say, we made some good purchases over the last 12 months. We are bringing those raw land purchases into development, have them bringing them under development. And so our feeling is, is that we're in a great position with lower-priced land hopefully than our competitors since we bought a little bit earlier, and we ought to be able to help supplement and protect our gross margins on a go-forward basis with the new good projects that we're bringing on at Horton.

Yes, great, that's very helpful. If we could -- I wanted to ask you a follow-up question with respect to land. This quarter, you took some charges for walking away from options and also impairing some older lots you were pointing out. I guess first of all, can you give us a sense for the options that you decided to walk away from, roughly what vintage are we talking about? Not an exact year, but I mean, are we talking like this was stuff that was recently purchased or older stuff? And then with respect to the impairments, if you can give us a sense for whether or not there are additional lots that are out there that you own that are sort of -- you're sort of mulling it over. They're kind of close of the threshold where you'd say, "Well, this is something that we might want to sort of walk away from." Or if you feel like what we saw this quarter was pretty much it?

I'll let Bill handle the second part of the question. The first part, I'd like to speak to specifically and that is we did walk away from earnest money deposits and due diligence expenses on land deals that we were working, but as the market slowed, we didn't want to acquire those lots because we didn't need those lots. So I learned and we have learned years ago, your cheapest walkaway is your earnest money as opposed to buying some piece of land or buying some lots that you really don't need in your inventory. That's what we chose to do. Bill?

So an option to walk away is clearly -- those are land deals we've been currently working over the last months, several quarters, perhaps over the last year. In terms of the projects that we took the charges on, those were projects that we have owned for a number of years that we bought pre-downturn. And as we evaluated our best return opportunities, we had, had plans to build through those projects but our returns were going to be very low. And so as we evaluated those, we determined our best option was to sell them in the short term and reinvest our cash into better opportunities. On a regular basis, we disclose our overall evaluation for potential charges and the number of projects that we continue to evaluate, but that list has continued to get smaller over time. And I believe it will continue to as long as we continue to see market recovery. There certainly could be additional projects in the future. But as of right now, we believe that everything that we're going to move that requires a charge at its current time has been taken.

In a couple of instances, we basically, what drove it was we had offers from buyers to purchase it, and we were forced to make a decision as to whether we want to keep it or take the cash in today. And we chose to take the bird in the hand.

Our next question today is coming from Mike Roxland from Bank of America Merrill Lynch.

Just first question, your pricing was better than we were modeling and yet volumes were a little bit lighter and overall gross margins were better than we were expecting. Was there anything from a cost vantage point in the quarter that benefited you? Was it lumber? Was it OSB? Or maybe was it just lower basis land that's beginning -- that still continuing to flow through the P&L?

We're still dealing with increased costs right for this quarter. And for the fiscal year, we've been able to increase our sales prices faster than what we have experienced our cost increases. But we still have good, strong cost increases from our subs and our manufacturers, and that we think that will continue into calendar year 2014. Our goal from our national purchasing, as well as from a local purchasing perspective, is to continue to hold those costs down. And we believe that we're in a preeminent position to do that just simply because in most of our markets, we are the largest builder. We're starting more homes than most people, and we're the largest builder nationally, which certainly helps us with our national contracts. So we're proactive in terms of those respects, but so far, we have been able to increase our prices faster than our costs have increased.

Got it, very helpful. Just last question, I wanted to get a sense from you as how you see margins progressing next year or two. You achieved a 29% gross margin this quarter. The last time you achieved this type of margin was back in 2006. So how much further do you think margins can go especially as the higher cost land you're purchasing either today or like a month ago starts to flow through your P&L?

Well, first of all, we're not purchasing as much land today or in the past 6 months at a higher cost. We feel like that we're in a preeminent position based upon our purchases 12 and 18 months ago that we're developing and bringing the market here for fiscal year '14. But as Stacey likes to say, we've increased our margins and we're hanging on to every bit as strongly as we can. And that's going to be really impacted, I think, clearly when it comes to the Spring selling season, and we have specific absorptions for community by community. And I don't want anybody to think that we're sitting here asleep at the wheel because we have a plan for each one of our communities, to hit a specific absorption level and a gross margin level, and we're going to fine-tune that with the ROI. So we're going to drive our absorptions and keep in mind our gross margins and our ROI.

We've seen a significant improvement on our gross margins primarily as we saw sharp jumps in prices in certain markets because demand was outpacing the housing supply. And so we've now recovered into a normal operating range. As we move forward, and as the supply is catching up to demand, we will still do everything we can to improve our gross margins. But our expectation is that the increases in sales price will moderate as we have caught up on the demand side, and until we see more substantial improvement in the overall economy and in the economy of our individual markets.

And as we said in our conference call script, we have had price increases on a number of our markets significant last year, but there are other markets where we haven't experienced that kind of increase. So we're hoping that those markets that have had a lesser increase in 2013 will have a stronger increase in '14 and help us maintain our gross margins or even hopefully improve them. But right now, I would agree with Stacy. We -- it's going to be a lot more difficult to improve our margins on the scale we did in '13 and '14.

Our next question today is coming from Eli Hackel from Goldman Sachs.

Just want to go back to your October comment, better than any of the month in the quarter. Was that driven by anything related to incentives? Was traffic constant from the third quarter -- from the fourth quarter into October, and maybe they just ended up closing in October? Just curious about the comments that you made there.

Yes, it's difficult know exactly what's caused it. But just anecdotally, we do hear that there could be a little bit of pickup in demand. And certainly buyers have had an opportunity to adjust now to higher rates, prices out in the marketplace are probably increasing quite at the paces they were in as many communities, so I think certainly buyers could be coming back. There could be some level of incentives that are a little bit more than you may be seeing in some of our communities or with some other builders. It could be there. But we're just pleased to see certainly some pickup in demand in October.

That's a good point, Bill, because as D.R. remembers when he sat in a model home himself self-selling homes, when the interest rates go up, you have a dearth of traffic there for 1 week or 2 as people are adjusting to the higher rates. And I think Bill makes a great point, and that is sales prices have increased dramatically in a lot of markets over the course of fiscal year '12. They are much more muted today. And I think the buyers are clearly getting more comfortable with where pricing is today. And they're beginning to become more comfortable with where rates are today. And as homebuilder, I would say based upon all my years of experience, as I told Stacey a few moments ago, if you're waiting for a better rate and a better house price, you're going to wait and you're going to find higher rates and higher house prices. So I think they're coming to -- a number of buyers are coming to the conclusion that rates are not that high, home prices are not that high and today is a great time to buy.

And then just one more question on the land. It sounds like you're saying you're spending a little bit less now than you were. I mean, I don't need your specific 2014 guidance, but do you think you'll end up spending less in '14 than you did in '13?

In terms of a land acquisition today, it will really be determined based on where we see the sales environment in the Spring. But today, our expectations is we will purchase less land in '14 than '13. However, our land development spending is increasing quite a bit as we develop the land that we bought in fiscal '12 and '13 and bring new communities in line. So our overall investments may not go down, but I think the mix will shift definitely more towards more development.

Our next question today is coming from Adam Rudiger from Wells Fargo Securities.

Can you talk about your orders geographically, and not at the metro level but just maybe in your reporting regions, there's a bit of a variance in terms of the different year-over-year changes. And so could you just talk about that in light of also comment on how much community count may have impacted some of those different regions?

Sure. As we look across our regions on a year-over-year basis for the quarter on sales, clearly, our largest 2 regions in the Southeast and the South Central had very solid results up in both units and then also seeing very good double-digit improvements in average selling prices. That's the core of our operation, and we certainly saw good results there. As we see good demand, there's a lot more job growth and more dynamic economies in many of those markets. On the flip side, you can see our next largest region in the West, units were down or number of homes were down 15%, but our total value was up by 12%. So there, that's reflective of significant pricing increases in the West. And I would say in general, we probably have more of our communities where we are pacing our rate of sales to our construction pace in our West region than in other places.

If you look at that West, that is totally reflective of what Horton did in the quarter, but most importantly in the fiscal year. I'm not going to apologize for being down 2% on units. But if you look at our total dollars of sales being up 14%, that's a great metric. And we could have driven the volume more, but we chose to collect the profits and focus on the dollars and increase our average sales prices market to market.

Okay. And the second question is, can you offer -- can you provide any preliminary outlook on expected community count growth in 2014?

We would expect it to continue to be up. I think the rate of increase, we're at 17% this quarter. I don't know that the rate of increase will continue that high on a year-over-year basis, but we do expect it to continue to be up on a year-over-year basis, at least for the next couple of quarters.

Our next question today is coming from Dan Oppenheim from Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: I was wondering if you can talk a little bit in terms of the spec homes that you have in terms of the 3,000 completed and the 9,000 under construction right now. Just wondering if this is where you want them to be? So what percentage of sales during the quarter were specs in October that you bring this down at all in terms of the better sales activity there?

We're sitting at about a 53% spec ratio today. And I would say to you that we have adequate inventory in each one of our markets to meet our current demand. And certainly in this time of the year, we expect our specs to work their way downward simply as we sell our existing specs, so that we can put new and fresh inventory out there come February and March when the selling season begins. And our percentage of specs that we sold -- stays pretty much somewhere in the 60% range each quarter. Daniel Oppenheim - Crédit Suisse AG, Research Division: Okay. And so no effort to bring that down and to bring the spec sales up in October and bring the level down?

We would like to increase sales and we'd like to increase specs, of course, Dan. And we're working on trying to bring the specs down slightly so that we can refresh some of our inventory out there.

We're in that normal range, so no major adjustments at all.

Yes. And, Dan, one of the things we've seen, too, is the spec percentage tends to follow our first-time home buyer percentage. So we've seen our first-time home buyer percentage trending down. It's entirely possible that specs may move down a little bit, too, because more of the higher-priced homes stay in backlog longer and people choose to do more customization to build jobs.

But we kept our spec percentage pretty much the same year after year after year after year. And Horton has always had slightly higher specs than other builders largely because we focus on doing a lot of business with realtors as opposed to spending advertising dollars. And as I've said many times before, realtors have one thing in common. They like to collect their commission as quickly as they possibly can. And that runs in conjunction with our homebuyers who, especially in this type of rate environment, are trying to take advantage of the interest rates before change. So we have a buyer who, when get qualified, they want to close as quickly as they can before rates move up and they can't qualify any longer. And the realtors who represent a huge percentage of our sales on a month-to-month basis, they want to be able to collect their commission in a 30-day period as opposed to a 4- or 5-month period on a build job.

Our next question today is coming from Joel Locker from FBN Securities.

Just on amortized interest, that's about 160 basis points in gross margins. What do you expect that for 2014?

Joel, it's been declining as our overall leverage has remained lower. It's probably at pretty close to its low point as we're now capitalizing all of our interest. We're not directly expensing any now. I think our capitalized interest in inventory will rise a bit, a little bit closer to our historic levels and then the level of amortized through cost of sales could increase slightly as well. I don't expect any dramatic shifts though from here.

Right. And on community count, what did you end the quarter with? I mean, how much was it up sequentially from, say, June 30 to September 30?

1% sequentially.

Our next question is coming from Stephen East from ISI Group.

Bill, you mentioned in community growth not as high in '14 as in '13. Is that purely internal issues? Are you seeing stuff -- getting things approved, getting through the pipeline, all of that. We hear it in some markets, didn't know if that was an issue. And also, when you look at the pricing that you think you'll be bringing your communities out this year, how does that compare to what type of gross margins you're getting today versus underwriting? Are we higher, lower, about what you expected as you went through the underwriting process?

In recent quarters, our community count has been up 15% to 20% in that range, which is pretty significant. By and large, I would expect over the next couple of quarters for the communities to come online reflective of our land spend in fiscal '12 and '13. Our land spend in more recent quarters has moderated a bit from those levels. I would expect community count to continue to increase of the same pace, although we expect it to continue to increase certainly. In terms of our margin expectations on our new communities, that's one of the areas that we have very, very strong expectations. We feel very good about the investments that we've made in fiscal '12 and early '13. We certainly set strong margin hurdles for those projects, and we've seen market improvement on -- in general since we made those purchases. So our expectations is the margins should come in very good there, which hopefully can provide some lift to our margins. Or if we see some softening in the market and perhaps incentives rise or anything like that, that provides us some cushion and some flexibility to hopefully allow us to keep or maintain our margins up in the level where we are today.

Okay. Great answer. And then if we look -- your SG&A surprised me a little bit. It ran about 70% of sales growth. Your SG&A growth was about 70% of your sales growth. Anything unusual going on there? Is that stepping up the Emerald division? Is there something else moving there, because always are typically outstanding on this line?

First thing to point out, Steven, is that if you're looking at sequential growth from Q3 to Q4, as we talked about last quarter, in Q3, our SG&A benefited by 40 basis points as a percentage of revenue due simply to changes in our compensation accruals due to our stock price decrease last quarter. So the sequential change is affected by that 40-basis point benefit last quarter. And when we look at it exclusive of that, the change in the quarter is more closely in our historical trends.

And I would also say to you as our business has grown, we've added more employees throughout the year. And we've been slow to hire. And as a result, a lot of that what you see working its way through the SG&A has just been the realization that we needed to hire more people to be able to grow our business.

Okay. All right. And then just the last thing I had. One housekeeping item is, what were the land sales and the revenues? And then Stacey, your Emerald division, could you just talk a little bit about that, about where you all are, where would you ultimately like to have that as a percentage of your business, that type of thing?

Well, I'd say is we're at the very formative stages with our Emerald division. And we haven't rolled out in the number of communities, some of which we are developing lots. So we don't have the products online yet. But the product offerings have essentially been from about $500,000 up to typically $1.2 million, $1.5 million, except for Palo Alto in California where we basically had a higher-priced homes, and that's just based upon the lot price. But we are receiving the amenity level in these homes, to finish out using different subs to build that product line is extraordinary. And if you ever have a chance to get into one of our Emerald communities, you'd be astounded of the high level of finish out and the quality of the floor plans and the quality of the exteriors. And so as a result, we don't know where we can take that business. But certainly, we look at other builders who are focused on that segment of the business, and we feel like that we can continue to make strong inroads into their business and grow our segment of the business of Emerald.

Okay. And the land sales and revs?

Land sale revs were $15.8 million for the quarter, $61.1 million for the year. And margin in the quarter was 23.4% on those land sales and 16.7% for the year.

Our next question is coming from Jay McCanless from Sterne Agee. James McCanless - Sterne Agee & Leach Inc., Research Division: Could you repeat the operating details on Regent especially the units that are going into backlog?

Regent backlog units were 231 units in backlog -- 213 units in backlog and a $31.1 million sales value. We acquired 240 homes in inventory and 300 lots. We also assumed control of another 600 lots in the process. James McCanless - Sterne Agee & Leach Inc., Research Division: Right. As with the markets slowing down a little bit, has the opportunities for similar deals increased? Are you seeing more deal flow coming across?

We're always looking at all transactions that we see coming across. And I would say that we had seen a bit of an uptick lately with the folks exploring their alternatives, people that have been through a few cycles. And maybe they're trying to time the top of the market and maybe they're looking at the market cycle. Whatever's driving it, we are seeing more deal flow. James McCanless - Sterne Agee & Leach Inc., Research Division: Got it. And if I can sneak one more in. What should we expect for the tax rate for next year?

Around 37%, could fluctuate a little bit either side of that, but around 37% is our current expectation.

Our next question is coming from Michael Rehaut from JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Just a question just on pricing trends throughout the fourth quarter. DT, you mentioned that you're trying to hold the line in incentives -- on incentives, and maybe your actions might be different seeing how things might come together in January. But I believe if I'm not mistaken in the past, you may be referred to, to a degree -- or maybe other builders have, I apologize if it hasn't been yourselves, but kind of percent of communities where you've been able to raise price and maybe by what degree of magnitude? Certainly things have slowed in the fourth quarter, but it does appear that you're still largely at minimum holding the line on price, if not raising in some areas. So I was just trying to get a sense, if you could give us an idea what percent of communities you have been able to raise price either through higher base price or lower incentives and on the flip side, what percent -- what percent you might have had to raise incentives here or there and how that contrasts to the previous quarter?

I can answer that question very briefly. Thank goodness we've never told you that information. You must have had us confused with someone else. Generally speaking, clearly, the demand has been more muted in this past quarter. And this, as I said earlier, is our normal seasonally slow period. And again, given the fact that we are up 14% in terms of total dollar sales in the quarter, we're not going to overreact. I don't want to overreact, and it's not the time to overreact. We had a wonderful September. And that was probably driven some by increased demand just off the top from people getting more familiar with the mortgage rates, more familiar with the housing prices. But we are also in certain areas, certain communities also having sales programs, sales contests and that sort of thing, division by division, community by community selective basis. So in those areas, we are offering some incentives to drive that increase. But we're not going to overreact. We're going to wait see what happens in January and February. But as I want to reiterate, we are totally prepared on a community-by-community basis, the sales programs for each one of those communities in place ready to implement based upon us wanting to meet a certain absorption level in each one of those communities. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: And, Don, when you said happy with September, were you referring to October actually, the bounce back there?

I was, thank you. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Okay. And just on October itself, is October typically a stronger month than September? Maybe there was some type of bounce back? Again, people getting more used to the new environment and -- or would you expect as November and December typically would be more of a slower -- as you get into the quarter, would you expect that to be continuing more of a normal seasonality?

The normal seasonality would be you'd see your strongest sales in March and April. And then you'd begin to see just a slow decline throughout the rest of the calendar year, with acceleration into January and February. So October is a seasonally slower time of the year. It's typically lower than September. We've also seen this pattern before that we actually saw it last year. So our October comp was a very tough comp because last year, we saw the same thing with October being higher than September. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Okay. And then one last one, if I could. The SG&A you mentioned in the prepared remarks that you expect to be seasonally higher in the first half of the year. Assuming that you'll have -- it appears given the backlog and the backlog ASP, still a decent, I'd expect at least low double-digit revenue growth in the quarter. Can we still expect year-over-year leverage?

That would be our expectation, yes.

Our next question is coming from David Williams from Williams Financial Group.

I wanted to see if you might be able to shed a little color on what you're seeing in maybe some of the A- and maybe B community? You guys seem to have a little better position maybe outside the city centers. And just kind of looking for a little commentary on what you're seeing as far as traffic in those areas?

We do count our traffic, and I don't focus so much on the traffic as I do the hit ratio that our sales people hit because can have -- you can be in a great community with a lot of traffic and if you don't have a salesperson who has what we call, high kill ratio, then you're not going to have nearly as many sales. So what we're focusing on is just how many traffic units do they convert to contracts. And generally speaking, our traffic was up in October as our sales, and we'll continue to monitor that as we go forward. Although in November and December, those are typically our slowest months of the fiscal year just simply because of the holiday season. And so we don't have any great expectations about November and December. But clearly, we do have great expectations about January, February and March.

Great. And then secondly, just on your cycle times, you'd mentioned that those that become a little more elongated. Can you frame that maybe with a little -- with days of change there?

It's not significant. We're talking in terms of no more than a 2- or 3-week difference really over the last 12 to 18 months. Still, the vast majority of our homes are constructed in the same range they always have, but within the ranges they have shifted no more than 2 or 3 weeks. But that's enough to move the needle a little bit for us.

It's also being lengthened by our Emerald product line taking longer to construct. And quite frankly, subs have been somewhat slow to grow their businesses simply because of the fact that they don't want to go back to 2005 and 2006. They want to keep their businesses slightly smaller. So there are times when we take the next subdivision to a framer or an electrician or a plumber and they say, "well, take it to somebody else." And so we've had to in certain instances look for other subs to backfill existing sub base simply because they've been through the merry-go-round once before and they don't want to go down the hill again.

Our next question today is coming from Jade Rahmani from KBW. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Just wanted to find out on the options walkaway cost, that was a pickup sequentially. And wanted to ask if of you expect that to trend higher driven by any change in your view on some of the deals that you currently have under contract.

We evaluate each one of those deals on a weekly and even a daily basis because all of those land contracts, whether they be option or all-cash purchases come up here. And we are evaluating where our performance has been in the subdivision, what are -- in terms of gross margins and what are our absorptions have been, and relative to our next take -- takedown requirement and if we believe that we have adequate lots. We don't want to do the next takedown, we try to extend the contract. But we're not going to bank lots in a deal where we're making marginal gross margins. The cheaper route is to close it down and go someplace else, redeploy our capital where we can achieve a higher ROI.

Just directionally, Jade, that was our highest number for a while. So directionally on average, we would expect that to probably come down going forward, but it will be lumpy. I mean, those decisions don't happen on a normal basis. They happen basically at a decision point where we have to make a go-forward or not go-forward decision.

And frankly, it's really -- it factors on a division by division, city by city, market by market basis all relative to what we're doing in that market in terms of returns and how much capital we want to commit to that market and where we can redeploy that capital if we can get a higher return. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: And in addition to the takedown time line, is pricing also up for negotiation or renegotiation?

Absolutely. I sent an email up to all of our regional presidents and division presidents about 4 or 5 months ago and said, "Hey, the land market is slowing down. Now is a good time to go back and see if we can get some of the lot price back, the negotiation downward into the sales price of a lot." And sometimes, we're successful, sometimes we're not. But it's -- I love D.R.'s comment, "You'll never know till you ask."

Right. These runoffs reflect after we've gone through every other possibility, whether it's delaying the takes, reducing the takes, suggesting the price, all of those things. We explore all of those things before we determine that we're not going to move forward. Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division: Great. And just on the cancellation rate, do you have a sense for how much of that was normal seasonality? I think historically in the fourth quarter, the cancellation rate does tend to pick up.

We've seen a little bit of that in the past. But I believe it was more driven by just the general adjustment that potential homebuyers were going through. We saw a little bit of that towards the end of Q3 and then that continued on into Q4. We didn't necessarily comment on it because one month is a little difficult to measure in terms of can rates. But we did see our can rate come back down a bit in the month of October when we saw a little bit better sales.

But an important point, just because we can someone because all of a sudden, they couldn't qualify under the existing mortgage, we have what we call the Home Buyers Club, and those people will go into that club or we'll keep them on the list. And 1 of 2 ways, we're going to still try to figure out how to put them in a home, house price or a rate that they can afford. And just because they can't qualify at a specific rate at our current sales price, they might elect them, they might be able to get them in a slightly smaller home. Bottom line is get them in a home today, let them experience that appreciation so they have something, some basis on their money to get the appreciation and be able to be a future buyer of another home, perhaps the one that they couldn't afford today, 3 or 4 years out.

Our next question today is coming from Alex Barrón from Housing Research Center. Alex Barrón - Housing Research Center, LLC: I wanted to ask about that acquisition that you did. How -- what was the timing, like was it at the beginning of this quarter or just very recently? Like how many homes did those guys deliver last year?

That acquisition occurred, in the first week of October, it closed. And they closed probably about 400 homes in the 12 months leading up to that. Alex Barrón - Housing Research Center, LLC: Okay, got it. And with regards to your tax rate this quarter, obviously, I think throughout this year, you guys have been reversing part of the remaining DTA. Was there some of that this quarter, and what is your remaining DTA valuation allowance?

Yes, we have been seeing some of that activity in the valuation allowance and other -- there's other tax adjustments that occur in the fourth quarter. We'll have full disclosure around all of our tax balances, DTA valuation allowances and everything in our 10-K. I don't have all those details here in front of me today, but we'll have all those in our 10-K that we'll file here in a week or so. Alex Barrón - Housing Research Center, LLC: Got it. And Don, I guess in your comments about you're not -- you're saying you're not becoming -- what was the word you used? Well, you said that you would evaluate what goes on in the next few months. Are you seeing anybody that is kind of acting irrational in your view?

No, not really. Clearly, as builders approach their fiscal year end, certain builders, they begin to offer incentives to hit their expected or desired closings or sales for the year. And so you always have that, Alex, and it all depends upon what month their fiscal year ends. So yes, we experienced some of that in a couple of months ago. But generally speaking, I think people are acting rational. And frankly over the course of the past 18 months or so, most of us have been, I wouldn't call struggling, but we've been striving to meet the demand in the marketplace and been experiencing good pricing. I think everybody in the industry should be glad to be back to decent demand and decent margin and decent pretax income possibilities on a go-forward basis. So right now, everybody's playing in the sandbox pretty well.

Our next question is coming from Jack Micenko from SIG.

In regards to the Home Buyers Club that you talked about a few questions ago, one thing we've seen is the private mortgage insurers have begun to fall out a little bit and move a little bit further down FICO. And at least one is now running MI down to the 620 level. And I'm curious if you begun to see any of that out of the mortgage company and sort of expanding the buyer pace on the entry-level side. And if that's something -- I think you said 720-ish was the average FICO for the quarter. Where was that number back in sort of more normalized time, sort of '03, '04, '02 kind of time frame, trying to get a sense of how much sort of buyer pool opening up that could possibly be?

Okay. In reverse order, the FICO score was about 723 this quarter. Historically, we would have expected something closer to 710, so not a huge difference from where we are today. In terms of the MI product and the expanded pool of buyers, we're not hearing anything significant about that. I can ask our mortgage company, if you'd like me to, and we can follow back up with you.

Okay. Great. And then have you -- recent reports talking about some of the builders selling some sort of closeout homes to some of the REITs. Are you active in any of that on the closeout side or some of the specs that maybe hung around in the past? Or is that something you've looked at in the past?

Absolutely not. No interest whatsoever.

Next question is coming from Jim Krapfel for Morningstar.

You mentioned walking away from optioned land just to increase flexibility? And does general experience during the downturn caused you to rethink your land spend next going forward towards more options?

Well, we would like to do 100% options if we could, but there are markets where we cannot. And simply because the developers aren't large enough or there aren't enough people well capitalized enough to provide us our lots on a timely basis in a cost-effective basis. So frankly, right now, if you take a look at our finished lots, we have about half of them that we own and about half of them that were optioned and that's probably a pretty normal percentage for us. Like I said, it would be nice to have 100% options with $100 earnest money up on each contract, but that's not feasible.

Do you see the supply of optioned land coming back any time next couple of years?

Actually, I don't. I think what we focused on over the course of the past 18 months is the reason we stepped up our land spend over the last 18 months there for a while was because there weren't option lots available. And so therefore we needed to get back in the business of being a land developer to provide us the necessary lots to meet the demand. And it just varies by market by market. I do know one thing. Right now, the banks are reluctant to lend on a very favorable basis to private developers to the extent that many of them are requiring 50% equity in the deal to develop the lots. So for a large builder like ourselves, well capitalized, we're in a preeminent position to be able to be a developer and provide ourselves lots at a cost-effective and timely basis.

Okay. And then second question, what were your selling prices per square foot in closings and new orders?

We -- I think we have that information available on the closings. We probably don't have it on the sale. Bill is looking right now.

We don't have that readily available. Why don't we just -- again with permission to get back to him later?

Yes, we'll follow back up with you, Jim.

Our next question is coming from Robert Wetenhall from RBC Capital Markets.

This is actually Desi filling in for Bob. In the financial services business, you highlighted that the competitive environment has become less favorable. Did you start to see this shift in prior quarters or was it the first quarter that's really impacted you?

Can you restate -- to restate your question, please?

Sure. So in the financial services business, you highlighted that the competitive environment had become less favorable during the quarter. Do you see that in prior quarters, or was this really the first time that it impacted you?

This was the first quarter that it really showed up in our operating margin. So you saw us running from around 40% operating margin to a lower level this quarter. Basically, there's a lot of capacity in the market origination business right now. Refis have dwindled as rates moved up. And so there's more competition for the business that's still available.

Would you say that current environment is normal or do you still see it as stable relative to historical trends?

This quarter probably falls right in the middle of what we would consider normalized historical trend.

Our final question today is coming from Susan Berliner from JPMorgan. Susan Berliner - JP Morgan Chase & Co, Research Division: Just want to get a little more detail, if you can, with regards to the markets. I know you talked about the regions, the West being really strong. But I was wondering if you could talk about any specific markets that are showing any slowdown, and highlight those markets that are doing really well?

Well, I have been reluctant to do that for a long time, and I apologize. I know that we have one of our competitors who seems to walk through and rate each market, and I always wait for their rating of the markets. I hate to give any specific color to you on that because we're very -- I guess we like to focus on our own markets and we don't like to give our competitors any indication of where we've got stronger or weaker markets. So I would apologize, but I prefer not to answer that question.

That does conclude our question-and-answer session. I'd like to the floor back over to Mr. Tomnitz for any further or closing comments.

Kevin, thank you very much for being a great moderator. We always appreciate you having us on our -- you on our call. To all of our D.R. Horton employees, we've come a long way, as the Virginia Slims commercial says. Since the '07, '08 and '09 period, we -- you've turned in a stellar year for us in fiscal year '13. We are looking forward to the same and better, obviously, in fiscal year '14. And we're optimistic with our existing land position that we bought over the last 2 to 3 years and with us bringing those projects under development. And we believe we're looking forward to being able to maintain and increase our gross margins in the year ahead and we're looking forward to increase demand in fiscal year '14 over '13. So thank you very much and God bless.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today