THIRD QUARTER RESULTS (2006 COMPARED TO 2005):
-- 2,636 homes closed (+14%) with ASP of $332K (+2%) for $876
million revenue (+16%)
-- Net earnings of $60 million (-15%), or $2.25 diluted EPS (-6%)
-- Gross margin of 20% includes $9 million cancelled lot options
and inventory write-downs
-- Net orders for 1,870 homes decline 36% with cancellations at
all-time highs
-- Order backlog decreases 33% to 5,084 homes valued at $1.66
billion
-- Net debt-to-capital ratio improves to 42%
-- After-tax return on assets improves to 16%, return on equity 36%
FULL YEAR 2006:
-- Diluted EPS expected to be $9.00-9.50 on $3.4-3.5 billion
revenue
SCOTTSDALE, Ariz., Oct. 25, 2006 (PRIMEZONE) -- Meritage Homes Corporation (NYSE:MTH) today announced third-quarter and year-to-date results for the period ended September 30, 2006.
Summary Operating Results (Unaudited)
(Dollars in thousands, except per share amounts)
---------------------------------------------------------------------
As of and for the
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 %Chg 2006 2005 %Chg
---------------------------------------------------------------------
Homes closed
(units) 2,636 2,310 14% 7,886 6,192 27%
Home closing
revenue $875,743 $753,505 16% $2,624,968 $1,956,235 34%
---------------------------------------------------------------------
Sales orders
(units) 1,870 2,929 -36% 6,576 8,499 -23%
Sales order
value $581,230 $970,535 -40% $2,108,208 $2,857,492 -26%
---------------------------------------------------------------------
Ending
backlog
(units) -- -- -- 5,084 7,536 -33%
Ending
backlog
value -- -- -- $1,664,840 $2,498,948 -33%
---------------------------------------------------------------------
Net
Earnings(a,b) $ 59,539 $ 70,253 -15% $ 216,330 $ 153,688 41%
Diluted
EPS(a,b) $ 2.25 $ 2.40 -6% $ 7.94 $ 5.35 48%
---------------------------------------------------------------------
(a) The three- and nine-month periods ended September 30, 2006 include
charges related to the adoption of SFAS 123R of $2.0 million
($1.5M after-tax) and $9.3 million ($6.8M after-tax), respectively,
plus severance and other employee departure-related costs of $1.1
million ($0.7M after-tax) and $12.8 million ($7.9M after-tax),
respectively.
(b) The nine-month period ended September 30, 2005 includes a charge of
$31.5 million related to a series of refinancing transactions that
reduced after-tax net earnings by $19.7 million, or $.68 per diluted
share.
"We're pleased to report the results we achieved this quarter, especially considering that market conditions continued to be very challenging," commented Meritage Chairman and Chief Executive Officer Steven J. Hilton. "This has been an extremely fast reversal of fortune from just a year ago, and will be a significant test of homebuilders' strategies and skillfulness as we manage through these times. We look forward to facing these challenges and the opportunities they present with the strategies and team we have in place today at Meritage."
Third quarter revenue and earnings
Meritage delivered 2,636 homes for record third quarter home closing revenue of $876 million, a 16% increase over third quarter 2005 home closing revenue of $754 million on 2,310 homes. These increases are the result of closing 45% of orders in beginning backlog, combined with a 2% increase in average price to $332,000 this quarter compared to $326,000 in the third quarter 2005.
Third quarter net earnings and diluted earnings per share declined 15% and 6%, respectively, year over year to $60 million or $2.25 per diluted share, compared to $70 million or $2.40 per diluted share in 2005, reflecting a lower gross margin. Third quarter gross margin fell to 20.3% from 23.6% a year ago, as higher incentives reduced home closing revenues, while costs of sales rose due to higher lot costs and inventory write-downs. Meritage incurred $9 million in charges related to forfeited lot option deposits and inventory valuation write-downs caused by price declines in certain markets.
Commissions and other sales costs were higher during the quarter as a result of increased advertising, marketing and co-brokered sales. General and administrative expenses increased just slightly, including $2.0 million pre-tax expenses for stock-based compensation in the third quarter 2006 related to the adoption of SFAS 123R and $1.1 million of severance-related costs. Excluding these expenses, G&A would have improved to 3.6% of revenue from 4.2% in the prior year period. This improvement reflects the Company's successful efforts to control overhead, including additional personnel adjustments made during the quarter.
Year-to-date revenue and earnings
For the first nine months of the year, closings of 7,886 homes and related revenue of $2.6 billion increased 27% and 34%, respectively, over 2005, primarily reflecting closings from the record backlog of sales that occurred in 2005. Year-to-date net earnings of $216 million reflected a 41% increase in 2006 over $154 million in 2005, or 25% after excluding a $19.7 million after-tax charge in 2005 for refinancing debt. Earnings in 2006 were reduced by after-tax charges of $6.8 million of stock-based compensation expense related to the adoption of SFAS 123R and $7.9 million of severance and other employee departure-related costs.
Orders and backlog
Net orders for the third quarter 2006 declined 36% year over year to 1,870 homes, reflecting a slower sales pace across the board. Meritage's weakest markets were in Florida, although California, Arizona and Nevada had a greater impact on the total decline in sales. New community openings and slower sell-outs of existing communities coupled with lower sales, resulted in net sales per average community falling from 17 one year ago to nine this quarter.
Cancellations occurred at an all-time quarterly high of 37% of gross orders in the third quarter, or 19% of beginning backlog, compared to 21% of gross orders or 12% of beginning backlog in third quarter 2005. As a result of slower sales, higher cancellations and increased closings in the last twelve months, backlog declined 33% year-over-year in both units and dollar value, to 5,084 homes valued at $1.7 billion.
Average order prices were 5% lower on year-to-date orders for Meritage, and 6% lower in the third quarter, due to higher incentives in our weaker markets and an increase in the proportion of sales in lower-priced markets such as Texas. Texas markets represented 61% of Meritage's total orders in the third quarter and 55% in the first nine months of 2006, up from 45% and 40% in the respective periods in 2005.
"Demand has clearly slowed in many of our major markets, as demonstrated by declining order trends reported by other public homebuilders and rising inventories of existing homes," commented Mr. Hilton. "While our Texas markets remain relatively strong, Florida -- particularly the Ft. Myers/Naples area -- is our most challenging market today. High cancellations -- driven by buyers' fears or inability to sell their existing homes -- are resulting in lower net orders, higher unsold inventories, more costly incentives and lower margins as we work to resell these homes."
Tactical adjustments
"We are responding to weaker conditions across many of our markets by making tactical adjustments to maintain a strong balance sheet, improve our margins and position ourselves for the next up-cycle," said Hilton. "We are increasing marketing efforts through additional sales training and advertising, increasing the frequency of customer contact to manage our backlog, and aggressively working to reduce unsold inventories of homes. We are re-evaluating and renegotiating land option contracts based on recent sales pace and prices. We're re-bidding construction contracts and actively managing overhead costs. Unfortunately, we have had to shrink our employee base in some markets."
Higher cancellations have caused the percentage of unsold homes in inventory to more than double from historic levels as of September 30, 2006. The Company had 363 unsold completed homes and another 981 unsold homes under construction, representing 7% and 18% of total inventory of homes. Meritage continues its build-to-order strategy, with 75% of homes being built or completed under home sales contracts at quarter-end.
Approximately 88% of the Company's total 52,000-lot supply at quarter-end was controlled under purchase agreements and option contracts. Hilton added, "We have limited our total lot growth while adding lots in stronger markets during recent quarters. We've reduced our total lot supply by more than 2,100 since the beginning of the year, and now have 4,200 fewer lots outside of Texas than when we entered the year. We expect to further reduce our total lot supply by as many as 2,500 lots by year-end."
Balance sheet
"Our strategies to limit financial risks by subcontracting our home construction, managing relatively low levels of debt, maximizing the benefits of options in controlling land, and building relatively few spec homes, have enabled us to produce some of the best returns in the industry while simultaneously managing a very strong balance sheet," Hilton continued.
Management maintained a strong balance sheet and liquidity throughout the quarter, reporting a net debt-to-capital ratio of 41.7% at September 30, 2006, compared to 45.3% one year earlier. Debt to EBITDA improved to 1.3 from 1.7 year over year, and the Company's interest coverage ratio improved to 11.5 from 9.4, in the third quarter 2006 compared to 2005. Total funds available under Meritage's existing bank credit facility stood at $468 million at September 30, 2006, after considering the most restrictive covenants.
After-tax return on assets improved year-over-year to approximately 15.5% from 13.8%, and return on equity improved to approximately 35.9% from 33.6%, based on trailing four quarters' results this year compared to one year ago.
Full year 2006 outlook
"As we've stated previously and this quarter's results demonstrated, we expect sales and earnings trends will be weaker until cancellations normalize and stability returns to our markets," said Hilton. "Based on our reduced backlog, higher cancellations and slower order trends, we expect total revenue of $3.4-3.5 billion in 2006, and diluted EPS of $9.00-9.50. Additional write-offs of option deposits and inventory may be necessary if we experience further deterioration in market conditions or if we're unsuccessful renegotiating lot option contracts. Because of these uncertainties, we are not in a position to provide specific guidance for 2007 at this time. However, we believe we are armed with a strong balance sheet, confident in our strategy and leadership team, and committed to positioning Meritage to maximize future growth and stockholder returns."
Segment reporting
As shown in the table of "Operating Data," the Company has revised its reporting to present homebuilding operations in regional reporting segments. This has no effect on the Company's financial position, results of operations or cash flows for the periods presented. The Company is in the process of amending its Form 10-K for the year ending December 31, 2005, and Forms 10-Q for the quarters ended March 31 and June 30, 2006, to reflect this change. We believe these amendments and revised reporting format are consistent with changes being adopted by other public homebuilders.
Conference call and webcast
The Company will host a conference call Thursday, October 26, 2006, at 11 a.m. EDT to discuss the results of the quarter. The call will be webcast and accompanying materials will be accessible on the "Investor Relations" page of the Company's website at http://www.meritagehomes.com. The dial-in number is 866-700-7173, pass code "Meritage," and participants are encouraged to dial in five minutes before the call begins. A replay of the call will be available after 2 p.m. EDT October 26, 2006, through midnight November 25, 2006, by dialing 888-286-8010 and referencing pass code 62198634. The webcast replay will also be available on the "Investor Relations" page of the Company's website, and through CCBN for two weeks at www.fulldisclosure.com.
Meritage Homes Corporation and Subsidiaries
Operating Results
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
-------- -------- ---------- ----------
Operating results
Home closing revenue $875,743 $753,505 $2,624,968 $1,956,235
Land closing revenue 2,453 1,945 15,159 3,954
-------- -------- ---------- ----------
Total closing revenue 878,196 755,450 2,640,127 1,960,189
Home closing
gross profit 177,787 178,011 611,317 450,039
Land closing
gross profit 221 57 1,350 528
-------- -------- ---------- ----------
Total closing
gross profit 178,008 178,068 612,667 450,567
Commissions and other
sales costs (55,934) (39,635) (156,810) (106,975)
General and
administrative
expenses (a) (34,347) (31,894) (128,413) (82,529)
Other income, net 6,720 5,963 22,944 16,433
Loss on extinguishment
of debt -- -- -- (31,477)
-------- -------- ---------- ----------
Earnings before
provision for income
taxes 94,447 112,502 350,388 246,019
Provision for income
taxes (34,908) (42,249) (134,058) (92,331)
-------- -------- ---------- ----------
Net earnings $ 59,539 $ 70,253 $ 216,330 $ 153,688
======== ======== ========== ==========
Earnings per share
Basic:
Earnings per share $ 2.28 $ 2.57 $ 8.15 $ 5.72
Weighted average
shares outstanding 26,087 27,311 26,554 26,880
Diluted:
Earnings per share $ 2.25 $ 2.40 $ 7.94 $ 5.35
Weighted average
shares outstanding 26,490 29,217 27,259 28,748
Reconciliation to
exclude one-time
charge (b):
Earnings before
provision for
income taxes $246,019
Add: Loss on
extinguishment
of debt 31,477
----------
Adjusted amounts:
Earnings before
provision of income
taxes 277,496
Provision for
income taxes (104,144)
----------
Net earnings $ 173,352
==========
Basic earnings
per share $ 6.45
Diluted earnings
per share $ 6.03
(a) The three- and nine-month periods ended September 30, 2006 include
charges related to the adoption of SFAS 123R of $2.0 million
($1.5M after-tax) and $9.3 million ($6.8M after-tax), respectively,
plus severance and other employee departure-related costs of $1.1
million ($0.7M after-tax) and $12.8 million ($7.9M after-tax),
respectively.
(b) The nine-month period ended September 30, 2005 includes a charge
of $31.5 million related to a series of refinancing transactions
that reduced after-tax net earnings by $19.7 million, or $.68 per
diluted share.
Meritage Homes Corporation and Subsidiaries
Non-GAAP Financial Disclosures
(Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
EBITDA reconciliation:(a)
Net earnings $ 59,539 70,253 $216,330 $153,688
Provision for income taxes 34,908 42,249 134,058 92,331
Interest amortized to
cost of sales 12,508 9,514 32,787 27,025
Depreciation and
amortization 5,095 4,728 15,272 12,752
-----------------------------------------
EBITDA $112,050 $126,744 $398,447 $285,796
=========================================
As of and for Trailing
Twelve Months Ended
September 30,
2006 2005
EBITDA reconciliation:(a) ---- ----
Net earnings 318,307 205,500
Provision for income taxes 202,287 124,476
Interest amortized to cost of sales 44,558 37,872
Depreciation and amortization 19,727 17,016
---------------------------
EBITDA $ 584,879 $ 384,864
===========================
Interest coverage ratio:(b)
EBITDA $ 584,879 $ 384,864
Interest incurred 50,886 $ 41,145
Interest coverage ratio 11.5 9.4
Debt to EBITDA ratio:(c)
Notes payable and other borrowings $ 788,010 $ 671,782
EBITDA $ 584,879 $ 384,864
Debt to EBITDA ratio 1.3 1.7
After-tax stockholder returns: (d)
Net earnings $ 318,307 $ 205,500
Average assets $ 2,055,190 $ 1,484,867
Average equity $ 886,617 $ 612,410
After-tax return on assets 15.5% 13.8%
After-tax return on equity 35.9% 33.6%
Net debt-to-capital: (e)
Notes payable and other borrowings $ 788,010 $ 671,782
Less: cash and cash equivalents (75,436) (40,185)
---------------------------
Net debt $ 712,574 $ 631,597
Stockholders' equity 994,881 761,922
---------------------------
Capital $ 1,707,455 $ 1,393,519
Net debt-to-capital 41.7% 45.3%
(a) EBITDA is a non-GAAP financial measure and represents net
earnings before interest expense amortized to cost of sales,
income taxes, depreciation and amortization. A non-GAAP
financial measure is a numerical measure of a company's
historical or future financial performance, financial position
or cash flows that excludes amounts, or is subject to adjustments
that have the effect of excluding amounts, that are included in
the most directly comparable measure calculated and presented in
accordance with GAAP in the statement of earnings, balance sheet,
or statement of cash flows (or equivalent statements) of the
Company; or includes amounts, or is subject to adjustments that
have the effect of including amounts, that are excluded from the
most directly comparable measure so calculated and presented. In
this regard, GAAP refers to generally accepted accounting
principles in the United States. We have provided a
reconciliation of this non-GAAP financial measure to the most
directly comparable GAAP financial measure.
EBITDA is presented here because it is used by management to
analyze and compare Meritage with other homebuilding companies on
the basis of operating performance and we believe it is a
financial measure widely used by investors and analysts in the
homebuilding industry. EBITDA as presented may not be comparable
to similarly titled measures reported by other companies because
not all companies calculate EBITDA in an identical manner and,
therefore, it is not necessarily an accurate means of comparison
between companies. EBITDA is not intended to represent cash flows
for the period or funds available for management's discretionary
use nor has it been presented as an alternative to operating
income or as an indicator of operating performance and it should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP.
(b) Interest coverage ratio is calculated as the trailing four
quarters' EBITDA divided by the trailing four quarters' interest
incurred.
(c) Debt to EBITDA ratio is calculated as notes payable and other
borrowings divided by the trailing four quarters' EBITDA.
(d) Return on assets is defined as net earnings for the trailing
four quarters divided by the average of the trailing five
quarters' ending total assets. Return on equity is defined as net
earnings for the trailing four quarters divided by the average of
the trailing five quarters' ending stockholders' equity for the
same period.
(e) Net debt-to-capital is calculated as notes payable and other
borrowings less cash and cash equivalents, divided by the sum of
notes payable and other borrowings, less cash and cash
equivalents, plus stockholders' equity.
Meritage Homes Corporation and Subsidiaries
Balance Sheet Data
(In thousands, unaudited)
September 30, December 31,
2006 2005
------------ -----------
Total assets $ 2,243,777 $ 1,971,357
Real estate 1,577,169 1,392,267
Cash and cash equivalents 75,436 65,812
Total liabilities 1,248,896 1,120,352
Notes payable and other borrowings 788,010 592,124
Stockholders' equity 994,881 851,005
Meritage Homes Corporation and Subsidiaries
Operating Data (Unaudited)
(Dollars in thousands)
3rd Qtr Year-to-date
------------------------ ------------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Beg. End Beg. End Beg. End Beg. End
Active --- --- --- --- --- --- --- ---
Communities:
California 26 27 22 18 20 27 18 18
Nevada 6 5 6 6 6 5 6 6
--- --- --- --- --- --- --- ---
West Region 32 32 28 24 26 32 24 24
Arizona 40 41 30 35 35 41 26 35
Texas 113 121 98 101 108 121 89 101
Colorado 5 5 1 4 3 5 -- 4
--- --- --- --- --- --- --- ---
Central Region 158 167 129 140 146 167 115 140
Florida(a) 14 14 6 10 12 14 -- 10
--- --- --- --- --- --- --- ---
East Region 14 14 6 10 12 14 -- 10
--- --- --- --- --- --- --- ---
Total 204 213 163 174 184 213 139 174
=== === === === === === === ===
(a) 2005 results for Florida include Colonial Homes and Greater
Homes only since acquisition, in February and September 2005,
respectively.
Meritage Homes Corporation and Subsidiaries
Operating Data (Unaudited)
(Dollars in thousands)
For the Three Months Ended September 30,
2006 2005
------------------- -------------------
Homes Value Homes Value
------ -------- ------ --------
Homes Closed:
California 382 $210,941 406 $244,703
Nevada 177 70,282 138 52,980
------ -------- ------ --------
West Region 559 281,223 544 297,683
Arizona 851 286,390 765 213,975
Texas 1,063 247,926 879 197,926
Colorado 36 13,121 -- --
------ -------- ------ --------
Central Region 1,950 547,437 1,644 411,901
Florida(a) 127 47,083 122 43,921
------ -------- ------ --------
East Region 127 47,083 122 43,921
------ -------- ------ --------
Total 2,636 $875,743 2,310 $753,505
====== ======== ====== ========
Homes Ordered:
California 304 $156,095 400 $236,709
Nevada 68 28,444 165 66,791
------ -------- ------ --------
West Region 372 184,539 565 303,500
Arizona 314 94,842 954 328,379
Texas 1,148 292,595 1,318 304,346
Colorado 34 13,324 31 11,048
------ -------- ------ --------
Central Region 1,496 400,761 2,303 643,773
Florida(a) 2 (4,070)(b) 61 23,262
------ -------- ------ --------
East Region 2 (4,070) 61 23,262
------ -------- ------ --------
Total 1,870 $581,230 2,929 $970,535
====== ======== ====== ========
-------------------------------------------------
As of and for the Nine Months Ended September 30,
2006 2005
----------------------- -----------------------
Homes Value Homes Value
---------- ---------- ---------- ----------
Homes Closed:
California 1,166 $ 665,935 1,130 $ 667,602
Nevada 538 213,544 292 109,662
---------- ---------- ---------- ----------
West Region 1,704 879,479 1,422 777,264
Arizona 2,475 802,373 2,109 562,038
Texas 3,090 719,396 2,452 538,110
Colorado 89 32,849 -- --
---------- ---------- ---------- ----------
Central Region 5,654 1,554,618 4,561 1,100,148
Florida(a) 528 190,871 209 78,823
---------- ---------- ---------- ----------
East Region 528 190,871 209 78,823
---------- ---------- ---------- ----------
Total 7,886 $2,624,968 6,192 $1,956,235
========== ========== ========== ==========
Homes Ordered:
California 832 $ 455,308 1,437 $ 844,942
Nevada 279 111,093 515 194,435
---------- ---------- ---------- ----------
West Region 1,111 566,401 1,952 1,039,377
Arizona 1,504 520,127 2,852 914,374
Texas 3,630 901,181 3,358 760,437
Colorado 98 37,970 39 14,070
---------- ---------- ---------- ----------
Central Region 5,232 1,459,278 6,249 1,688,881
Florida(a) 233 82,529 298 129,234
---------- ---------- ---------- ----------
East Region 233 82,529 298 129,234
---------- ---------- ---------- ----------
Total 6,576 $2,108,208 8,499 $2,857,492
========== ========== ========== ==========
Order Backlog:
California 380 $ 210,337 1,002 $ 568,611
Nevada 90 23,949 460 163,976
---------- ---------- ---------- ----------
West Region 470 234,286 1,462 732,587
Arizona 1,456 556,456 2,734 889,723
Texas 2,713 691,250 2,391 535,417
Colorado 41 16,943 39 14,070
---------- ---------- ---------- ----------
Central Region 4,210 1,264,649 5,164 1,439,210
Florida(a) 404 165,905 910 327,151
---------- ---------- ---------- ----------
East Region 404 165,905 910 327,151
---------- ---------- ---------- ----------
Total 5,084 $1,664,840 7,536 $2,498,948
========== ========== ========== ==========
(a) 2005 results for Florida include Colonial Homes and Greater
Homes only since acquisition, in February and September 2005,
respectively.
(b) Negative order represents the total value of orders cancelled
exceeding the value of new orders taken this quarter.
About Meritage Homes Corporation
Meritage Homes Corporation (NYSE:MTH) is a leader in the homebuilding industry. The Company is ranked by Builder magazine as the 13th largest homebuilder in the U.S., is in the S&P SmallCap 600 Index, and has been perennially included on Forbes' "Platinum 400 - Best Big Companies in America", the Fortune 1000 and Fortune's "Fastest Growing Companies in America" lists. Meritage operates in many of the highest growth housing markets of the southern and western United States, including six of the top 10 single-family housing markets in the country during 2005, and has reported 18 consecutive years of record revenue and net earnings. For more information about the Company, visit www.meritagehomes.com. Meritage is a member of the Public Home Builders Council of America (www.phbca.org).
The Meritage Homes Corporation logo is available at http://www.primezone.com/newsroom/prs/?pkgid=2624
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include those regarding our expected revenue and diluted earnings per share for 2006, our expected lot reductions through year-end 2006, other tactical adjustments we may undertake in response to weaker market conditions, and that additional asset write-offs may become necessary. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events or changes in these expectations.
Meritage's business is subject to a number of risks and uncertainties, including: fluctuations in demand, pace of sales orders, cancellation rates and home prices in our markets; potential for write-downs or write-offs of assets or deposits; interest rates and changes in the availability and pricing of residential mortgages; a decline in housing affordability; our success in locating and negotiating favorably with possible acquisition candidates; the success of our program to integrate existing operations with any new operations or those of past or future acquisitions, including Colonial Homes of Florida and Greater Homes, Inc.; our increased investments in land acquisitions and development joint ventures; our dependence on key personnel and the availability of satisfactory subcontractors; our ability to take certain actions because of restrictions contained in the indentures for our senior notes and the agreement for our unsecured credit facility; our lack of geographic diversification; the cost and availability of insurance, including the unavailability of insurance for the presence of mold; our potential exposure to natural disasters; the impact of inflation; the impact of construction defect and home warranty claims; the strength and competitive pricing of the single-family housing market; demand for and acceptance of our homes; changes in the availability and pricing of real estate in the markets in which we operate; our ability to acquire additional land or options to acquire additional land on acceptable terms, particularly in our start-up markets; our exposure to obligations under performance and surety bonds, performance guarantees and letters of credit; general economic slow downs; consumer confidence, which can be impacted by economic and other factors such as terrorism, war, or threats thereof and changes in energy prices or stock markets; inflation in the cost of materials used to construct our homes; our level of indebtedness and our ability to raise additional capital when and if needed; legislative or other initiatives that seek to restrain growth or new housing construction or similar measures and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2005, and our Form 10-Q for the quarter ended June 30, 2006, under the caption "Risk Factors." As a result of these and other factors, the Company's stock and note prices may fluctuate dramatically.