Good morning and welcome to the D.R. Horton, America's Builder, the largest builder in the United States First Quarter 2014 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference 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 Chief Financial Officer; Stacey Dwyer, Executive Vice President and Treasurer; and Mike Murray, Senior Vice President. Before we get started, as usual, 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, which is filed with the Securities and Exchange Commission. Don?

D.R. Horton is off to a strong start in fiscal 2014. Our first quarter results were highlighted by $189.7 million of pretax income, on $1.7 billion of revenues and a pretax operating margin of 11.4%. Our home sales gross margin improved 350 basis points year-over-year to our highest level since 2006, setting a firm foundation for a strong profitability as volume grows. Housing market conditions continue to improve across most of our operating markets and we are optimistic about the upcoming spring selling season. We are prepared for spring with attractive communities in great locations and a strong supply of finished lots and homes in inventory to capture the expected increase in demand. Our weekly sales pace accelerated in January as compared to the first quarter, which could be an early sign of strong demand to come in the spring. Bill?

In the first quarter, our consolidated pretax income increased 76% to $189.7 million from $107.9 million in the year-ago quarter. Our pretax income as a percentage of consolidated revenue was 11.4%, an increase of 290 basis points from 8.5% in the year-ago quarter. Homebuilding pretax income more than doubled to $181.9 million from $90.2 million, and financial services pretax income was $7.8 million compared to $17.7 million. Net income for the first quarter increased 86% to $123.2 million or $0.36 per diluted share, compared to $66.3 million or $0.20 per diluted share in the year-ago quarter. Mike?

Our first quarter home sales revenues increased 33% to $1.6 billion on 6,188 homes closed, up from $1.2 billion on 5,182 homes closed in the year-ago quarter. Our average closing price for the quarter was $263,500, up 12% compared to the prior year driven by pricing power and an increased mix of larger move-up homes. Stacey?

The value of our net sales orders in the first quarter increased 14% to $1.5 billion. Homes sold increased 4% to 5,454 homes, and our average selling price increased 10% to $275,600. The cancellation rate for the first quarter was 23% compared to 22% in the year-ago quarter. The value of our backlog increased 20% from a year ago to $2.1 billion with an average sales price per home of $275,100, and homes in backlog increased 5% to 7,684 homes. Our backlog conversion rate for the quarter was 75%. We are ready for the spring selling season with a strong supply of homes available to close by March, so we expect our second quarter backlog conversion rate to be around 75%, which is higher than our second quarter historical conversion rate. Bill?

Our gross profit margin on home sales revenue in the first quarter was 22.3%, up 350 basis points from the year-ago period. 200 basis points of the margin increase was due to improved market conditions resulting in reduced incentives and higher selling prices in excess of cost increases. 110 basis points was due to lower relative costs for warranty and construction defect claims as a percentage of home sales revenue, and the remaining 40 basis points of the margin increase was due to lower amortized interest in property taxes. We have invested in attractively priced land and lots over the last 2 years and we continue to see solid demand and improved pricing in many of our markets. Based on current market conditions, we expect our gross margins to continue at a strong level. Don?

Homebuilding SG&A expense for the quarter was $183.4 million compared to $140.8 million in the prior-year quarter. As a percentage of homebuilding revenues, SG&A improved 20 basis points to 11.2% from 11.4%. We continue to leverage our fixed cost structure, while at the same time building our sales and production capabilities where necessary. We expect our SG&A as a percentage of homebuilding revenues to increase seasonally in the second quarter before trending lower in the third and fourth quarters with higher expected revenues. The improvements in our gross profit percentage and SG&A expense ratio expanded our homebuilding pretax margin to 11.1% in the current quarter, an increase of 380 basis points from 7.3% in the year-ago quarter. Mike?

Financial services pretax income for the quarter was $7.8 million, down from $17.7 million in the year-ago quarter. This quarter reflected a more competitive pricing environment, whereas the year-ago quarter benefited from unusually favorable market conditions, which produced higher than normal gains on sale of mortgages. 88% of our mortgage company's loan originations during the quarter related to homes closed by our homebuilding operations. FHA and VA loans accounted for 45% of our mortgage company's volume this quarter, down from 49% in the year-ago quarter. Borrowers originating loans with our mortgage company during the quarter had an average FICO score of 719 and an average loan-to-value ratio of 89%. First-time homebuyers represented 41% of the closings handled by our mortgage company this quarter compared to 50% in the year-ago quarter. Bill?

Since September, our construction in progress and finished homes inventory increased by approximately $224 million. We had 16,800 homes in inventory at the end of December, of which 1,400 were models, 9,300 were speculative homes and 3,400 of the specs were completed. Our average community count for the quarter increased 13% from a year ago. In our first fiscal quarter, our investments in lots, land and development totaled $467 million, of which $254 million was for land development, and $213 million was to purchase finished lots and land. At December 31, 2013, we owned 126,000 lots and controlled 49,000 lots through option contracts. 61,000 of our lots are finished, of which 33,500 are owned and 27,500 are optioned. We are well positioned to meet demand with our 175,000 total lots owned and controlled. Mike?

In October, we acquired the homebuilding operations of Regent Homes for $34.5 million in cash. Regent operates in Charlotte, Greensboro and Winston Salem, North Carolina. At the date of acquisition, we acquired approximately 240 homes in inventory, 300 lots and control of an additional 600 lots through option contracts. We also acquired a sales order backlog of 213 homes valued at $31.1 million. Our first quarter results include 76 net sales and 136 closings in Regent's operations. Stacey?

Our unrestricted homebuilding cash totaled $801 million at quarter end. At December 31, we had available capacity on our revolving credit facility of $656 million and no cash borrowings outstanding. Our homebuilding leverage ratio, net of cash, was 37.1% and our gross homebuilding leverage was 43.8%. The balance of our public notes outstanding at December 31 was $3.3 billion. Subsequent to quarter end, we repaid the remaining $145.9 million principal amount of our 6 1/8% senior notes at maturity. Our $500 million principal amount of convertible notes mature in May. These notes are eligible for conversion into equity if our stock price is at or above $12.96. If the notes convert, we intend to settle them with common stock. In January, our Board of Directors approved a payment of a quarterly dividend of $0.0375 per share payable on February 18 to shareholders of record on February 7. Don?

In closing, this quarter was D.R. Horton's most profitable first quarter since 2006 with $189.7 million of pretax income. The majority of our operating metrics continued to improve on a year-over-year basis this quarter. The value of our sales, closings and backlog increased by 14%, 33% and 20%, respectively. Our pretax income increased 76%. Our pretax income margin increased 290 basis points to 11.4%. Our gross margin on home sales revenues increased 350 basis points. Our SG&A, as a percentage of homebuilding revenues, improved 20 basis points. Our average sales price increased 10%, as we experienced pricing power in many of our markets. We are better prepared this year than we have been for any recent spring selling season. We have a strong finished lot position and an attractive cost basis. And we continue to bring new communities to market, which reflect extraordinarily competitive finished lot costs due to our excellent low-cost land purchases over the last several years. January sales are accelerating into the spring and we have a supply of spec homes available to meet that demand. We look forward to a very strong spring selling season. We'd like to personally thank all the D.R. Horton team, let's keep the momentum from January going. This concludes our prepared remarks and now, we'll host any questions you may have.

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

So my first question was actually on absorptions. And if I got the numbers right, it seems like absorptions were down kind of high-single digits, community counts up, and obviously, pricing is very, very strong in the backlog and in terms of order growth. Should we see that as kind of a little bit of a change strategically, that you're going to let absorptions be a little bit lighter year-over-year maybe, if that's the way it falls out but you're going to hold pricing? Or is the commitment still very much --, "Let's make sure we drive absorptions through the system and through the communities?" Maybe you can just kind of talk about the balance at this point?

I think where we are clearly -- and it's the same place where we were at the end of the fourth quarter -- and that is, we're holding our pricing strong and firm going into the strong selling season. And we feel like there's a limited supply of new homes on the market. And I think as we move into the strong selling season, that we'll be able to continue to maintain our pricing, if not slightly increase it. So we don't see any real reason, as we said at the end of the fourth quarter, David, to begin discounting early. There's no use to get -- to overreact. We think we're in an extraordinarily strong position. And based upon our sales in January and especially this last week, we feel very good about the strong spring selling season and our ability to continue to maintain our pricing stability and raise prices.

That's very helpful. And then, maybe you guys can comment on the Regent Homes deal. If I got the numbers correctly in the dialogue, in the prepared remarks, they just overbooked, it sounded like, maybe slight premiums were up booked. What's the deal flow look like, especially kind of after the second half last year, a little bit of uncertainty heading into this year? Are you finding the deal flow will pick up in terms of M&A? And the willingness of, maybe, private builders to be flexible on pricing? Is that changing out there now?

We are seeing a lot of opportunities as we have been and we're evaluating them. There was a bit of a pause in the sales environment late last summer into the early fall. And that perhaps did bring a few more people to coming out and trying to look at their alternatives and options. So we continue to look at opportunities, and hopefully, we'll continue to be successful finding the right acquisitions. We're not stressed to have to do any one given deal. We're looking for the right thing that fits strategically with what we see as a company and improving our footprint and our capabilities.

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

It was interesting to note in your prepared remarks -- in your press release, you specifically called out the move-up buyer as an area of strength. I was just wondering if you could elaborate that a little bit more, and also address what you're seeing in the first-time buyer?

Well, clearly, we opened Emerald Homes probably about 6 months -- or actually longer than that, 9 months ago -- and we're bringing that into fruition in a number of our divisions and that's focusing on the higher end. And that product line has met with a lot of strong demand in the marketplace and we're expanding that into more and more divisions. And we expect to continue to grow that to the point where it will become a significant portion of the corporation on a go-forward basis.

Okay, so but...

And in terms of the first-time buyer, though, I mean, I don't ever want people to think that, that's not a core part of our business as well. The first-time buyer and the first-time move-up buyer have been our bread-and-butter for many, many years and we're going to continue to focus on those segments as well. But we have seen an opportunity to expand our product offerings so we're offering more things to more people in many of our markets.

I guess from a demand perspective, can you discern any different trends between the segments?

I think we're seeing some improvement in the move-up simply because we've added that product line. And so it's really hard for us to gauge what the incremental demand in that is. Overall, for our business, it's been an increasing portion of demand.

Okay. And then, when you -- Don, it sounded to me like when you're -- your tone, when you're talking about acceleration into January that, that was a little bit more than you might see normally. Is that correct?

I would relate it to, specifically, my expectations. And as you know, I'm a more conservative person. So I would tell you that in January and especially this last week, that our sales have been better than I had expected. And I'm excited about where we are and I feel like that we're right on the cusp of a strong selling, spring selling season. And from my own personal perspective, I think the spring selling season has started a little early for our company and that's a very positive thing that I'm seeing.

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

Can you just talk about specific trends during the quarter? Was any 1 month particularly better? And if so, what do you think drove that? Was there -- it sounded like you didn't increase your incentives at all. So what did you see as the quarter played out?

Really, our sales pace through the quarter was fairly consistent. Each month of the quarter was up on a year-over-year basis. So we saw just very consistent sales trends and then we've seen that accelerate in the month of January.

I also think that the buyer is becoming more accustomed to the current mortgage rates. If you recall back a couple of quarters ago, there was a pretty adverse reaction to the increase in mortgage rates even though they were slight and they're still historically low by anybody's standards. But frankly, over the last 4 to 6 months, the buyers have become accustomed to the mortgage rates and I think that, that will be less and less a factor as we move into the spring selling season and fiscal year '14.

And you see that in terms of your traffic as well? The traffic has accelerated?

Yes.

Got you. Then the last question is -- quickly. Can you help us frame how we should be thinking about rising rates and really the impact on your business? Obviously, we don't expect another spike in rates but we should have higher this year alongside, obviously, the Fed tapering. At what point should we expect to see a more notable impact on your business? And should we expect you to increase your focus on move-up luxury buyers in anticipation of rates going up?

Well, I personally believe that rates are going up, as I've said for a number of quarters, although they haven't gone up significantly. I don't believe rates are going to go up significantly. And the way I look at it today, the affordability index is still at one of the highest it's been in many, many years. I look at current opportunity for the buyers to buy a home at still reasonable prices relative to where they've been on a historical basis. And where the mortgage rates are, that it's certainly a great time to buy a home. And I think that a lot of buyers are continuing to accept that and believe that.

And we've looked at numerous charts over the past few years and the tightest correlation in terms of new home sales isn't with interest rates, it's with jobs. And so if interest rates are rising because the economy is improving, because more people are employed, we view that as a strong positive boost[ph] for our business.

Our next question today is coming from Dan Oppenheim from Crédit Suisse. Daniel Oppenheim - Crédit Suisse AG, Research Division: It sounds that you're in great shape in terms of being prepared for the demand in the spring season. I was wondering, Stacey, you'd talked about the higher backlog conversion based on the specs there for the March quarter. I was wondering, how much of that in terms of what you're doing in specs is really for the first-time buyers in terms of. Let's call it, the 2/5 of the business there versus higher price points? And with the first-time buyers, what are you typically seeing in terms of timing from contracts on into closing?

More of our specs are probably going to be targeted toward the first-time buyer and the first time move-up buyer. In terms of time to contract, I don't think we're seeing anything that's significantly different. We had expected, as the economy recoveries and the demand recovers, that we'd see more build-to-order, and we actually did see our backlog conversion rates slowing down some. We're still running above historical trends and we're still seeing more compacted contract to close than we've seen historically.

And still, with the number of changes in the mortgage underwriting guidelines, it's taking longer to qualify a buyer than what it has in the past. And we're processing those as quickly and as efficiently as we possibly can, but that is a slowing process to our business. Daniel Oppenheim - Crédit Suisse AG, Research Division: Great. And then, in terms of the comments in terms of the better trends in January, especially this past week. Any regional color you can offer in terms of just where you saw pockets of strength?

Dan, I've passed that stage in my life. I'm going to pass on that question. This we -- we just look at the business overall and I'll leave it other people to make the commentaries on the various markets and grade the markets.

Our next question today is coming from Michael Rehaut from JPMorgan. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: First question, just wanted to dig in a little bit more, Don, on your comments regarding sales trends in January and how you're thinking about the spring. Given that sales pace is still down year-over-year, obviously, with some of the shorter-term comps and recent gyrations earlier this year with the mortgage environment, in terms of your expectations, you're obviously, looking forward, as you said, to a strong spring selling season. But as that comps against last year, where it was also a very strong selling season, are you thinking more that you'd be happy matching on a sales per community basis, the results of the year-ago and that would certainly qualify as a strong season? Or are you actually looking for year-over-year improvement on a sales pace basis?

Well, we're constantly looking for year-over-year improvements on the sales basis, but to your specific question, we're always trying to increase our absorptions on a per community basis. That's our best leverage of our SG&A and that's a focus in each one of our communities. So we are focusing on how we penetrate each market deeper, but also how we increase our absorptions on a community-by-community basis.

I would add one thing on that. If you look at our West region, we actually have been raising our sales prices and really improving our operating margin, that we're not focused on absorptions in that region just because of the lot supply dynamics there. So there's always the nuance of we're going to approach our business differently based on the different market conditions everywhere. So again, it may not be a one-size-fits-all answer. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Okay, and I appreciate that. And then, just some clarification, if possible. Don, you mentioned about SG&A, you expect it to increase seasonally in the second quarter. Just wanted to clarify if that was in dollars or on a percent of sales basis relative to 1Q? And also, if you could give what the community count was in the first quarter sequentially in year-over-year in terms of the growth as you have in the past?

On the SG&A certainly as a percentage, but certainly not in terms of dollars. And if you'll notice that our Q1 SG&A dollars were down. So as a result, we expect the same thing to happen to us in the second quarter. Community count...

Community count, on a sequential basis, our average community count was up 2%, and year-over-year was up 13%. Michael Jason Rehaut - JP Morgan Chase & Co, Research Division: Okay. But the SG&A as a percentage of sales versus 1Q, is that -- I mean, on a year-over-year, I'd assume you'll have leverage but sequentially, would that be up as well? Or...

We think on a percentage basis, we'll be up because typically, our second quarter, we -- is our slowest quarter for closings. And if you take a look at our expectation on our backlog conversion, 75% would produce slightly fewer units in Q2 closed than what we did in Q1. So our SG&A, as a percentage of revenues will be slightly up.

And that's our normal seasonality in terms of SG&A.

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

Don, you've talked a little bit about SG&A. If I step back and just look at all the costs that are rolling through. Your gross margin, when I backed out last quarter's warranty benefit, was up pretty significantly sequentially. One, did that surprise you? Two, what are the expectations moving forward relative to this past quarter in that? And then on your SG&A, what's driving that? We expect that it would drop a little bit more than what it's been dropping. Is it just your infrastructure build or are you using more dollars on brokers, et cetera, than expected? And sort of tied into that, what you all think about cost expectations as we go through to '14?

Well, on our gross margin basis, obviously, what we've been doing is we've been holding our prices steady even though the demand, if you look at our fourth quarter sales and our first quarter sales, we've been able to hold it, even in a slow part of the time period. And as Stacey had said earlier, clearly in the West region, as well as other regions, we are not discounting homes and we're maximizing our prices. So in terms of gross margins, our gross margins are basically close to their historical peak, but we don't think they're -- we're at peak pricing in most of our markets. We strongly believe one of the factors that will continue to improve our gross margins -- actually, 2 factors. One is our very competitive land positions that we're bringing to market in the form of finished lots. And secondly, if you take a look at what we think is a constrained or reduced demand or -- of inventory of homes out there for the expected demand, I think that we're going to have pricing power because of those 2 factors. But especially the limited amount of inventory that's prevalent in most of the markets today. I'll let you guys handle the SG&A.

And in terms of SG&A, clearly, we are prepared for stronger volumes in 2014. So we have been building infrastructure on our sales teams and our production capabilities. And so from that standpoint, we definitely are prepared for some stronger volumes. And on a year-over-year basis, we did leverage it 20 basis points. So we are ahead of the pace that we set last year. In Q1, we finished the year at 10.7% last year so we're on pace to do better than that. Clearly, we're always looking to leverage SG&A as much as we possibly can. And our expectation is with higher volumes later in the year, that we will leverage it further.

And to digress just for a moment, obviously we're expecting to close more units in fiscal year '14 than we did in fiscal year '13. So we've added -- we've had to add the additional SG&A particularly on the construction side to get our homes built and to have them available for the spring selling season. And as the market continues to improve, as we think it will, throughout the third and fourth quarters, we've got to have superintendents to deliver those homes.

Okay. That is a very thorough answer for all of that. That helps me a lot. I appreciate it. And then just the other thing that I had, in your fiscal first quarter, if you look at it sequentially, your orders usually drop about 15%, 20% versus the fourth quarter. This time, they were up about 6%. Blending that with what you've said about the January commentary, is the result in the fourth quarter more a function of the fourth quarter improving -- or the first quarter improving, or the fourth quarter just being much weaker than normal?

No. I think it's a function of the first quarter improving. Like I said, that improvement has continued over into the second quarter. And we're very happy, even though we're focusing on double-digit increases in all the important metrics, except for SG&A. The fact that we are up 4% in units and 14% in terms of dollars in our sales, we're very pleased with that. So we continue to feel like there's momentum building and we're pleased with those numbers.

Our next question today is coming from James McCanless with Sterne Agee. James McCanless - Sterne Agee & Leach Inc., Research Division: I wanted to ask first on the community count growth numbers you gave. Should we expect that plus 13 or somewhere in that range to be the growth rate for the rest of the year?

James, we would expect it to moderate a bit. We do expect our community count to continue to be up on a year-over-year basis, but it may not continue to be double-digit based on what we can see right now. But really, what will ultimately happen will depend on what we see in terms of the strength of the market as we get into the spring and later in the year, if they have -- if the strength exceeds our current expectations, we could end up adding some additional communities. But right now, we'd expect it to stay positive but perhaps not at the double-digit level.

One of the factors in the marketplace today is that the number of markets have land prices reflecting continued increase in median house prices, and we're very, very pleased with our current land position because we bought before the prices ran up as dramatically as they have. And clearly, that's what we're expecting in terms of complement to our gross margins. Because we do have less expensive land than what the market is reflecting in terms of land prices today.

In each of the last 2 years, we've built our community count by double-digit percentages each of the last 2 years, so we've built up to a very good footprint to be prepared for this year. So we're in a very good position and really don't feel the urgency to have to continue to increase our community count at the same pace.

And that's reflected in our first quarter land spend because basically we had -- what $45 million worth of land spend in the first quarter. So that's less than what we've had for quite some time.

And the total land and finished lots are $213 million. That is moderating from where we've been.

Our next question is coming from Stephen Kim from Barclays.

A few questions. First, I was wondering if you could talk a little bit about the spec situation. I guess, first, you talked about the fact that you've got, I think you said 9,300 specs, and that positions you well. A lot of times, when you have a lot of specs, people sometimes, in previous times, say that "Oh, it's a bad thing." Because that means you're going to have to discount. But in periods where the demand is very strong, you really don't have to discount that much. So, I guess, if you could help us understand, if sales progress through the first quarter are, let's say, a little lighter than you anticipate, would there be a point where you might feel you have to sort of accelerate the discounting on those units? And what sort of scenarios embedded in your expectation since you're going to be having more specs as a percentage of deliveries, I would think, than you did for some time?

First of all, we're in a very strong position given our specs. Although our specs as a percentage of our total inventory are nowhere near what our peak specs were at one point in time as a percentage of our inventory, our specs as a percentage of inventory increased from 53% to 56% sequentially, which is normal process, so that we get ready for the spring selling season. But we don't share your concern about a weak selling season. I think there's going to be a strong selling season. But, Kim, to your specific point, if there were such, currently, our spec gross margins are continuing to exceed our build job gross margins. So we feel like that we're in an extraordinarily strong position, given one, our spec count; and two, the margins built into our specs, so that even if we have to discount -- and we don't think that we're going to be eroding our overall gross margins significantly. Ordinary course of business.

That's really helpful.

Yes, when we're managing specs as ordinary course of business, the ones that really will receive more discounts are those that are aged. And that's what we really monitor very closely, to manage our specs. And our aged completed specs continue to stay at a very low level.

Great, that's very helpful. That's very interesting. And then secondly, regarding your land spend, you pointed out just now that it is really low. It's actually really the lowest we've seen for a while from you guys. Some people would take that as a sign of confidence that when you start feeling really good about the business, again, that you might actually start coming back into the market and spending more land -- more on land. But from your commentary, it sounds like you're pretty much planning on standing pat for at least the next few quarters -- or next couple of quarters in terms of land spend at this kind of level. Is that a fair characterization? Or are you guys thinking that the land market is starting to look more interesting here?

Well, it's always interesting. Has been for 30-some odd years, but I'd say that we're -- the key in the land side is to be proactive earlier in the market, just like we do on the acquisition side. So I would say to you, the wonderful thing about where we are today is we were proactive. We have some great subdivisions and masterplan communities that we're bringing in at lower than current prices, which gives us that pricing power. We're proactive in the market. We're always taking a look at opportunities. And I wouldn't describe our land acquisition policy as on the back burner. We're always out there aggressively looking for quality deals that we can make our return on.

Great, that's very helpful. And then lastly, the FHA changes, the loan lumps [ph] coming down and whatnot. And I was just in Florida last week. It was definitely a topic of conversation, but people haven't really been seeing the effect yet. With your commentary about the last week of January -- or the most recent week of January, it would sound like it's not really having much of a bite on your ability to transact. Can you just sort of comment on what you think the loan limit impact is going to be on your business?

It's probably a smaller impact for us now than it would've been a few years ago, because we've already seen the mix of the mortgages that we're writing through our mortgage company come down significantly in the FHA category. I think part of that has been intentional, as they've raised the down payment for the last 3 years and then increased the insurance cost, both on the upfront and the monthly premium. So the cost of an FHA loan compared to an initial loan is getting to be in the same ballpark. So if people had the 5%, they're probably going to choose to put the 5% down. So I'm sure that there will be some places that are impacted, some buyers that are impacted, but there are good alternatives for them with the conventional financing that's available as well.

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

This is Rob Hansen on for Nishu. Just kind of noticing over the past few quarters, your total land supply on an absolute basis and on a year supply basis has come down pretty significantly. So I just wanted to see if you could comment on what you think your kind of optimal land supply is here going forward?

Well, currently, we're sitting on approximately a 2.5-year supply of finished lots, both owned and option. And our total lot supply, both developed -- and our finished and unfinished is right at 5 years. So my definition of a conservative but more than adequate land supply is a 5-year supply. And we're right on that number right now. And 2.5-year supply of finished lots, that gives us more than enough lots to meet the demand and meet the construction cycles and so forth on the land development side. So we think we're well positioned. Those are good numbers, 2.5 and 5.

Okay. And then kind of given the comments you've made on land prices and a little bit of a slowdown in land spend, I guess you're kind of right around where you need to be in terms of total land. But does this mean that acquisitions may be a better way to pick up land in the future, given your other comments?

Well, not to create a higher hurdle for Mike sitting over here to my left. But I guess it all depends upon the premium that he has to pay for lot positions.

Absolutely. It's one strategy to acquire a greater land position, but it's also -- acquisitions give you sometimes a functional capability you didn't have before, or gets you quicker to achieving efficiency in a given functional capability beyond just acquiring land or lots. Always looking at land and lot option positions. And while the spend did come down in the first quarter, as looking at a discrete 3-month window, those -- that's kind of a short window to look at. And it was very -- it was much higher in the prior quarter, a little bit lower in the quarter before that. So it is going to fall up and down as we see the opportunities and when various land transactions close. It's hard to look at any one 3-month period and extrapolate to that. Plus, our development spending has increased as we're bringing more of those land purchases from last fiscal year into production this year.

The key in the land acquisition business is to be able to be opportunistic based upon your inventory of land and loss supply for your expected housing production. And we are right in the right place, right now in terms of where we bought and when we bought. And we're not -- we don't have to be desperate to go out and replace lots. We see land transactions taking place in several of the markets that I've been in recently, where it doesn't make any sense to us -- the prices that some of our competitors are paying for land prices. So again, we feel like that, that 2.5 and 5-year supply at the prices we have, and we can replace those as we see fit and as demand dictates, but we don't have to overreact on the land purchase side.

Our next question today is coming from Ken Zener from KeyBanc Capital Markets.

I guess, Don, the question of seasonality, as we kind of look at the homebuilders right now, usually, since 1Q decelerates from 4Q it's not abnormal for 2Q to go up from 1Q. Our estimate is you guys usually go up around 50% sequentially. Is that somewhat accurate? Is that a reasonable benchmark for our and perhaps your expectations, if the season is doing well or not? Per absorptions, per community?

I would answer that question, yes, really.

Okay. Now as we're seeing differences by region, so the southeast in terms of backlog, it had come down versus other places like -- southwest, excuse me, have come down versus the east. Could you just perhaps comment if these absorptions are different by the regions? Or why we're seeing such swings in those particular markets?

I think in particular if you look at the southwest, basically, our ASPs out there are flat. And, essentially, the southwest for us is Phoenix and New Mexico -- or Arizona and New Mexico. So as a result, I just came out of Phoenix and Tucson. And if you look at Phoenix, specifically, this -- at this point in the year, they have about 25,000 or 26,000 existing homes on the market compared to 16,000 last year, so that's a lot of competition for all sellers. Secondly, that the ASPs in calendar year '13 in Phoenix increased 25%, and that's not expected to happen in fiscal year or calendar year '14. But as a result, I think that pricing ran up dramatically and quickly in Phoenix and has plateaued. And I think that it will stay flat to slightly decreased in Phoenix, and maybe to a certain extent in Tucson. But that's the wonderful thing about where DR Horton is and in our footprint, because we're well diversified. And we want to be a bigger builder in Phoenix, but right now is not the right time, given where the demand and the pricing point is. It's a good market for us, but it's not a great market. And it's going to be weaker, I think, in '14 than what it is -- was in '13.

So you're asserting rising existing inventory is hurting the new supply demand?

I think if you're a seller in the marketplace, and you have 26,000 homes on the market versus 16,000 homes, I think that notwithstanding the fact there's a percentage of the buyer out there who is a new homebuyer and not an existing homebuyer, that nevertheless that additional inventory in the marketplace creates a more competitive environment.

And do you see pressure from what had been investor-related properties coming back to the market? Or are they in just different locales?

I think it's difficult to ascertain what the level of investor ownership is in each one of these markets. And I do believe that the investors are still holding. But as the ASPs flatten year-over-year, I think that'll create more opportunities for those -- or create more reason for those owners to bring those units to market. So you could face more increased competition especially in some of the Sunbelt cities like Phoenix and Las Vegas and so forth, where there has been a huge investor participation. I think there's a possibility those units will start coming back to market and compete with all sellers.

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

I just was curious on your tax rate. It was around 35%. What do you expect going forward in the rest of '14 and '15?

For the remainder of '14, we would expect to be between 35% and 36% this year. The primary difference this year is that we're going to able -- we expect to be able to fully utilize the domestic production activities deduction, which has been limited for the last few years as we've been utilizing our NOL carryforward. We've now fully utilized our federal NOL carryforward, so now we'll get that deduction, which helps to offset our overall tax rate. So our expectation's between 35% and 36%.

And what about 2015, is that going to be any different?

Based on what we can see right now, I wouldn't guide to anything really different than that. There could be changes between now and then. But as of right now, I wouldn't see any significant difference from '14.

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

Your average order price was up 10% year-over-year which is fantastic, but it was sequentially flat. And I wanted to get a view, with the opening ASP for orders of 275,000, what should we expect for modeling purposes? And how should we think about it moving forward through the rest of the year?

In terms of -- we've seen very good average selling price increases throughout '13. We have stated previously that we -- while we do expect to see some further pricing power into '14 depending on the strength of the market, we don't expect the prices to continue to increase at the same rate. So as we sit here today seeing early results that points towards a strong spring, we would expect to continue to see some further pricing increases over our current levels, but perhaps not the same pace we saw last year.

Would mid-single digit for the full year be a good starting point for thinking about it?

If you look at the course of history, if you have sales price increases in the mid-single digits, that's a very solid year, so we would certainly take that. We'd expect more, but accept that.

Okay. And great job on gross margin, huge move. It also sounds like it's sustainable, which is a great set up for 2014. Can you just give us a framework for thinking about operating margin on a net basis, how you see that moving through the year? Obviously, you have a tailwind with the gross margins, but what's the leverage look like on SG&A? And how much more upside should we be thinking this year in a good setup to the spring selling season, volumes good, pricing is strong so far? Should we be expecting big things out of operating margin performance?

Well, certainly. As you well know, the whole year will be -- will really be determined by how strong the spring selling season is. So there certainly is some uncertainty about where it can go. But where we stand today with where our backlog margins are, with what we see in our communities across our operation, we feel good about our current margin levels. We feel like we should able to sustain them in the current range. And we certainly expect to continue to be able to leverage SG&A. We've got 20 basis points in the first quarter. We would expect to continue to get further leverage through the year and improve on our previous years' operating margin. Past that, it's really going to depend on the strength that we see in the marketplace as we get into the spring.

A lot of that is a function of the fact that we've been steadfast and holding on to our margins though through the fourth quarter of fiscal year '13 and, clearly, the first quarter. And I will say, with the demand that we're experiencing in the first several weeks of January, I feel like with the limited inventory that's prevalent in the marketplace today, that we should be in a pricing power position -- strong pricing power position in most of our markets on a go-forward basis for fiscal year '14.

You guys have commented traditionally gross margin's been between 20% and 22%. You obviously beat that this quarter. Is there any chance we're seeing a shift towards a higher gross margin range above that 20% to 22%, maybe like 21% to 23%?

It depends upon a couple of factors. If we continue to do a good job of controlling our cost -- our stick-and-brick cost, as we have been doing relative to our sales prices, as well as, as I continue to say, everything that I read, everything that I see in the marketplaces. There's a limited supply of new homes on the marketplace. If the demand is as good as we think it's going to be in fiscal year '14 spring selling season, we will have an opportunity to expand those margins.

Our next question today is coming from Will Randow from Citi.

In regards to your financing business, with the implementation of the Ability to Pay rule, just about 20 days ago, can you talk about any added cost that we should expect, and how that may impact margins? And how have you seen that impact closings of those mortgages as well?

So far, we've not seen any impact on the closing of the mortgages. We have added some level of overhead for additional staffing, because we have implemented additional review processes at different points during the originating process to make sure that we are complying with the new regulation. So the customer's ending up with essentially the same mortgage product, and we've added a few more costs to deliver that product.

Thanks for that, Stacy. And then just a follow-up to an earlier question. Can you talk about the top 5 categories, where you're seeing incremental pressure on input costs? Sounds like land might be one of them but might be stabilizing.

Well, first of all, it's not impacting our input cost simply because we are not having to buy land at those higher prices today. Clearly, we see a little bit of increase -- potential increase on the drywall side. And I don't know how much that's going to be. But we think it's going to be a low total dollar amount per home. Lumber prices right now have been working in our favor, clearly. The one thing that is pretty constant in our business is that the lumber companies know that we have a strong spring selling season; and typically, lumber prices will increase in the spring selling season as the demand increases. So I would anticipate lumber will do the same thing that it has historically done for some-30 on years I've been in the business. They'll continue to raise prices in the spring. Other than that, those are my reflections. I don't know if you guys have any additional thoughts.

I'd just add labor to the bucket in selected markets just based on the construction level that we're seeing there and the availability of labor amongst the various trades, but that's not a consistent across the nation increase.

But just as a point of order, if you take a look at our year-over-year stick-and-brick cost per square foot, they were up less than what our year-over-year increase in our revenue per square foot is. So we're continuing to be able to raise prices at a faster pace than what we are experiencing cost increases.

Our next question today is coming from Alex Barron from Housing Research Center. Alex Barrón - Housing Research Center, LLC: Strong results. Don, I wanted to just get a little bit better understanding of your enthusiasm for the spring selling season, because last year, spring selling season was pretty darn strong, mortgages were 3.5% or lower, prices were much lower than they are today. So, I guess, I'm just trying to understand, do you think we're going to be able to see higher sales than we did a year ago? Or can you help me out with that?

We, personally, are counting on higher sales this year than a year ago. A couple of factors that I think are impacting that. One is that even though not overly excited about the growth in the economy, the one -- national economy, the one thing that is accurate is that there seems to be a slowing improvement in the overall economy, and that's good for our business. I think that translates into increased jobs, especially permanent jobs or full-time jobs, that will be additive to our business. Also, as I've mentioned earlier, there's been an adaptation to the current mortgage rates by the buyer over the last 4 or 5 years. And I think that's going to be -- or 4 or 5 months, I should say. And I think that's a positive to our business. And I also believe that when buyers are going into communities and looking for new homes, and there's not an excess inventory of new homes, I think that's a positive factor. One of the most negative things about a selling environment is if there's excess inventory in the subdivision, or in the market in particular, because then there's very little urgency on the part of the buyer. So I think the supply side is definitely helping the demand side, if no other reason from a psychological point of view is that there's not a lot of excess inventory out there. Alex Barrón - Housing Research Center, LLC: Okay, that's helpful. The other thing that I was trying to, I guess, understand better was it seems like, obviously, your margins were better, and I think you guys noted that it was because incentives were lower than a year ago. But I would have thought it's the other way around, because it seems like the markets slowed down at the end of 2013 and many builders were increasing incentives, it seems, versus the previous years. So I thought margins would have been under a little bit of pressure. But it seemed like in your case, that wasn't the case. So how is it that you think incentives were lower this year than last year?

I think, largely, as we said, Alex, from our fiscal year end '13 conference call is that we were not going to overreact. We looked at the inventory levels across the country and our markets, and we didn't see any excess inventory out there. And as a result, we -- and then especially places like the west, in particular, all the way from Seattle to Portland and northern California to Southern California, there's just not a lot of inventory out there, both in terms of finished lots nor finished homes. And we decided that we would not overreact, and that we would maximize our margins in that area. And if you take a look at the west in particular, our average sales price in the west was up 21%, and our operating margins increased from 9% to 15%. So I feel like that we called it perfectly out there, and we are in a strong position, like I said, in almost all of our markets, and we're going to let the market come to us. Alex Barrón - Housing Research Center, LLC: Okay, that's great. And if I could ask one for Bill. Bill, can you help me on the interest amortized of cost of goods sold versus interest incurred? Are those going to reverse towards each other at some point later this year or not until next year, you think?

Yes, I would expect that gap to narrow over the next year as we began capitalizing all of our interest costs, beginning in Q3 of last year once our active inventory exceeded our debt. The amount of inventory and interest in inventory has started to rise a bit, so I would expect that gap between interest incurred and amortized cost of sales to narrow a bit over time.

Our next question is coming from Jim Krapfel from MorningStar.

What were the selling prices and cost per square foot in your closings and new orders?

For closings, our revenue per square foot was $115 for the first quarter.

How much is that up on a year-over-year basis?

On a year-over-year basis, that was up...

8.4%.

8.4%.

8.4%. And then the cost per square foot?

It was up about 8.2%.

And that's just stick and brick. That's variable construction cost, yes.

Yes, that's stick and brick, sorry. Right, yes. And we do that on homes closed because on homes sold, it's not final, final. Closings, we can actually measure that and know that's a final number.

So as we said earlier, we're continuing to raise our prices faster than our costs are increasing.

When do the higher underwritten land deals really starts to flow through the P&L?

We anticipate third and fourth quarters of this fiscal year and then throughout fiscal year '15.

Okay. And final question, how much would you estimate you're getting in margin benefit just from previously impaired land?

That's very little. That's been declining every quarter for the last 3 years, so it's pretty minimal now.

The majority of our closings are on more recent land.

Right, yes.

Okay. One last question to throw in there. What's the latest activity with small private builders? Are you seeing them become a greater participant in the land market?

Well, I think the land market for most of the small builders is still a difficult proposition, simply because of the fact that banks are not lending, and a lot of those smaller builders are still reliant upon forming LLCs and finding private investors to finance it for them. And obviously, those are at higher interest rates than what you could get from a commercial bank, except that the commercial banks are not lending. So as a result, we still believe the public builder has a very advantageous opportunity, both on the land side, as well as the cost side and the houses. The smaller builders are not that significant a competitive environment for us, simply because of the fact -- the lack of financing.

And you expect that to improve for them going forward in the next year or two?

Oh, at some point in time, I presume the banks will begin lending, but I don't see that imminent on the marketplace. And one of the things that Mike is seeing on the acquisition side are smaller and medium-sized builders who are having difficulty acquiring financing and as a result are soliciting or interested in, I guess, liquidating their companies -- selling their companies. It's very competitive on the financing side out there for small people.

Our final question today is coming from Buck Horne from Raymond James. Buck Horne - Raymond James & Associates, Inc., Research Division: I wanted to go back to the spec inventory that you guys have. And just -- could you help me characterize what kind of specs you're building at this point, whether your mix of specs is more entry-level focused or more of the move-up product that's going out the door? And to what extent your view of mortgage availability this year is influencing the product mix of specs that you're building right now?

Our specs are across all subdivision, all product lines and all price lines. Clearly, from a volume perspective, we're going to have more of them on the entry-level and lesser in the move-up buyer, and even lesser into the second and third time buyer on our annual[ph] side. But clearly, we're, as Stacy said earlier, the heart and the core of D.R. Horton is still that first-time, and to the lesser extent, second-time homebuyer, but that's the vast majority of our focus. And that's where our specs are. Buck Horne - Raymond James & Associates, Inc., Research Division: And separate topic. Just going to the idea of investors in the markets. Have you been approached by any single-family rental operators that are out there, some of the larger guys or even smaller guys, that may want to buy new homes and build them for rent purposes? Is that something you guys would consider doing?

We have not been approached to that on a large-scale. That happens from time to time. We're in the business of building, selling and closing single-family homes to individual homebuyers. We have avoided selling blocks of homes to investors. That's not our business, and that's not a business that we want to be in.

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

Yes. Thank you very much. D.R. and I would like to thank all of our D.R. Horton employees. We've done a phenomenal job over the last 3 or 4 years. I can't say enough kudos to you. We continue to outperform our competitors. I've been here for 30 years. We've never been better positioned than we are today for the spring selling season in terms of opportunistic land purchases that we made, finished lot costs that we have in our land development deals as well as our inventory that's in the field. All of our salespeople are totally in a position of power, because you're well inventoried with specs in your communities. And we ask you to do the same thing that we've always asked you to do and that you've done: sell our specs and close them. And let's move onto a fantastic year. We're very optimistic about fiscal year '14. It's the culmination of a lot of hard work over the last 4 or 5 years. And it's time to slam dunk it. Thank you very much.

That does conclude today's teleconference. D.R. Horton would like to thank you for participating today. You may disconnect your lines at this time, and have a wonderful day.