KB Home Presents at 6th Annual J.P. Morgan Homebuilding and Building Products Conference 2013, May-21-2013 10:30 AM

| About: KB Home (KBH)


May 21, 2013 10:30 am ET


Jeffrey T. Mezger - Chief Executive Officer, President and Director

Jeff J. Kaminski - Chief Financial Officer and Executive Vice President


Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

All right, good morning, everyone. We're going to be moving along with the next presentation, which is KB Home. And we're thrilled to have both Jeffs, CEO, Jeff Mezger; and CFO, Jeff Kaminski, on this to present. Again, my name is Mike Rehaut, I'm the Homebuilding and Building Products analyst for JPMorgan. And we have -- we're well on our way into our first day of a great 2-day schedule, so we appreciate everyone's attendance. I believe we'll have about 20 minutes of prepared remarks and plenty of time for questions. And without any further ado, I'll turn it over to Jeff, Jeff Mezger. Thank you.

Jeffrey T. Mezger

Thanks, Mike. It's a pleasure for me to be here this morning. With me today is Jeff Kaminski, our Executive Vice President and Chief Financial Officer. After the presentation, Jeff and I will be happy to answer any questions that you may have. Before we begin, as always, I'd like to refer you to our disclosure on forward-looking statements. I'd also like to note that we're 10 days from the end of our quarter, so we are in a blackout period ahead of the release of our second quarter results. So any of the numbers that I'll share with you today would be through our first quarter that ended in February.

First off, let me start by walking through where we are today. The progress we've made in repositioning our company is significant. We are profitable in the second half of 2012. We will be profitable for 2013, and we have lots of momentum in our business. As a result of restoring profitability, we are now focused on pursuing accelerated growth and also continuing to enhance our profitability per unit. Our current capital structure supports our growth targets. There's no restrictions right now on our growth and we are pursuing it in all of our markets. We have a seasoned management team. Our senior team has a combined 16 years with KB Home and our regional and division presidents have an average of 28 years in the industry. Between the team and the markets that we're in today, we have an incredible spring coil from our existing growth platform. We're experienced at running a much larger business than we have today and our footprint also has significant upside. So our primary goal is to gain share and to grow our top line in the markets we're serving today. I'll walk through a little bit of our KBnxt business model, which I feel is a key differentiator for us going forward. It's consumer centric, it's a fact-based approach to land acquisition product design, what we put in the homes as standard and also what we offer as options, based on surveys that we've now been doing for 15 years in our served markets.

Our Built to Order approach and our Studio process offer many additional revenue and profit opportunities as we move forward. Our investment strategy is working. Our Q1 average sales price was up 24% year-over-year, while we sustain one of the highest sales rate per community in the industry. I'll share with you that this was more than just opportunistic pricing, it's a regional shift to more business in California. It's higher price points in the submarkets that we operate in and it's offering larger homes in more structural options. Lastly, I believe, we're in the right markets today at the right time.

We operate in 33 high-growth metro areas in 10 states. We're very comfortable with our current footprint. All of these cities are demonstrating an accelerating recovery and have very favorable long-term operation and economic growth projections. We're well-positioned to increase our market share in these served markets through our business model.

In 2006, we delivered 28,547 homes in our served markets to date. On a trailing 12-month basis, we delivered 6,617 from these same markets, so we have a significant upside in our current markets and don't need to really expand geographically.

California is our home state. We generated 49% of our revenue in 2012, 51% in the first quarter. We believe coastal California is arguably the best market in the country today, we're the largest builder in this area. The strength of the coastal regions is moving inward and we're continuing to benefit from this momentum as it goes to both the Southern California, Inland Empire, Central Valley, and Sacramento up north.

Over the last few years, 70% of our investment has been in California, which is not an easy place to acquire land, get entitlement, gain subdivision approvals. We have the most seasoned teams in this state and we have a very competitive advantage in this land constrained environment.

Moving to Texas. It's our biggest market by unit sales for the last 10 years. Strong, stable economies throughout the state, large housing markets and tenured teams that we expect to continue to grow in that region as well. It's a great book end to our California business as we operate today. All of our markets though, are recovering. We see upside across the country. Las Vegas and Phoenix in the Southwest region continue to do well. We're quickly ramping up in Phoenix. Las Vegas, as I've been sharing for a couple of years now, some of our best sales per community in the whole company continue to come out of our Las Vegas division.

In the Southeast, Florida is our largest business. At the peak in the Southeast, we delivered 5,700 units and it was our most recent geographic expansion. We're reloading, we're expanding at this time, and we expect big things out of the Southeast region over the next few years. Again, in summary, we don't need to expand to reach our growth targets, especially over the next few years.

We're capitalizing on our momentum of profitability by enhancing profitability through many of the levers that we can pull within our business model. When you're a Built to Order company, you can get lot premiums, you can get plan frequency premiums, elevation premiums, you can sell more things out of your studio and all those things went away when the markets were more difficult and we were just trying to get a sale. So today, as markets have stabilized and are in the recovery, all of these opportunities are back with us again. I'll share with you in a minute how our pricing and our margin improvement, in many cases, is outside of the market pricing that we're also taking.

In addition to this, the strategic repositioning of our communities continues. We're going to higher-priced submarkets, higher household incomes, we're offering and positioning larger models in those communities and the consumer in turn, is picking more structural options and spending more dollars in our studios. With a healthy backlog today, and even flow production, we're now metering sales, in particular, in Coastal California, we're going to go for as much price as we can opportunistically, while ensuring we hit the sales rate to support our business plan.

In addition to the price increases that have covered the labor and material increases that we incurred last year, we do also have opportunities to lower-cost as we gain our scale. We have standard processes across the company and value engineering ideas that may occur in Orlando can be used then in Austin, or Orlando, or Sacramento and we continue to share best practices. We can also leverage cost with our scale and through this even-flow production, as our daily run rates go up in the cities, we can actually get a lower price with the contractors and that their profitability goes up as well. So we have operating leverage due to scale, we have the benefits of larger businesses in each of our divisions and our business model creates a lot of synergy on the cost side. We're relentless on reducing cost and we'll not stop in this area. So you have revenue, you have scale and you have cost reductions contained in the strategy that continues to work well.

We're Going On Offense and our strong momentum continues in this area as well. In the first quarter, we invested $345 million in land and land development. We plan to invest $1 billion in 2013. We've targeted 120 community openings, most of them will be occurring in the second half. Again, with the goal of capturing more market share in the markets that we already serve. We're going to increase our average sales price, as I shared on our first quarter call, we'll continue to see that trend continuing through the year. So our revenue growth, we feel, will continue through product mix and sales price going up, growing community count and more sales per community going forward.

To illustrate how our strategy is working, I thought we'd share the price track that we've experienced over the last 3 years. Some of this is regional and local mix and has allowed us to increase our average selling price for 11 consecutive quarters. However, in the fourth quarter of last year, and the first quarter of this year, the strategy really paid big dividends. Within the first quarter number, at $271 million, which was a 24% year-over-year increase, as we dug in to about 2/3 of that increase, is from our strategy, larger product, better locations and regional mix, and about 1/3 or 8% was market opportunity.

We led the industry in average sales price growth, 3 of the last 4 quarters, the fourth quarter we were second, we're #1 for all of 2012. Then, as we moved into '13, our first quarter average sales price of 24% increase, compared to an 11% average among our peers. The fourth quarter was a 13% for KB versus 7% average among our peers. Our strategy is working. We are outperforming the market in terms of just opportunistic price through what we've done with our investment. Based on backlog value at the end of the first quarter and the communities that we anticipate opening this year, we expect the trend to continue and expect our average sales price to continue sequentially and certainly, year-over-year for the remaining 3 quarters of 2013. While accomplishing this sales price increase, we remain committed to our core consumer segments, the first time and first move-up buyer, which in the first quarter, accounted for 80% of our sales. 60% of our sales in the first quarter were still to our first-time buyer.

Some of the highlights in the first quarter that illustrate our progress and profitability and momentum are here. Revenues, for starters, increased 59% year-over-year, both due to higher deliver count and higher ASP. We improved our adjusted operating margin by 9.9 percentage points, reported operating income for third straight quarter. Net order value increased by 83% to $507 million, and year-over-year increase in our backlog value of 53% has us well-positioned with future revenues of more than $700 million in backlog at the end of February. Through this housing cycle, we remain committed to our Built to Order business model.

This is a fairly simple chart but it details why we do what we do. For starters, we get higher margins. In normal times, our pre-sold starts run a margin almost 5 percentage points higher than an inventory sale. Even today, we're still seeing a higher margin not to that degree, and I expect as markets stabilize and continue to recover, that our old historical spreads will come right back. People will pay you for their home and their lot, with their options, their elevation and it's the home of their choice. And the left, is frankly, what KB's business model used to be and what most of the industry business model is today. We started out with an inventory home. You put in the features you think the buyer wants, the closer it gets to completion, you throw in sands on, [ph] basically forcing your value on to the consumer.

On the right is the KB approach. We have a low base price and a product that's designed with the features that our survey tells us the consumer wants. They go to the Studio, they pick -- well, first, they pick their lot and their floor plan, then they go to the Studio, finalize their elevation, structural options, their core selections, upgrades, energy efficiency options and they end up with a home that's their home, based on their budget and what they want.

In essence, we create high perceived value among the consumers. We feel that's why we can drive the kind of sales price increases we've seen, while at the same time, having one of the highest, if not the highest, sales per community in the industry. As markets normalize, I think there's a lot of opportunity in this area.

The Studio is a vital component of the Built to Order process. First and foremost, it's there to sell homes. It generates sales, it generates traffic, it overcomes buyer's objections during the selling process. It is part of the home selling process, actually. But on top of that it's a profit center. Our margins in the Studio are accretive to our core homebuilding margins and with the things I've already shared, I believe there's another 1% to 2% margin lift in our Studios as we continue to refine and pull some of the levers that are there for us going forward. It enables us to test consumer preferences. Through frequencies, you can move your pricing around, which is something we share on a national basis. And also we work with our national accounts who will bring in the latest products. They use our studios as a way to test their products and consumer preferences. So there's a lot of synergy here in the studios. It's also one of the keys for our ability to sustain an industry leadership position in energy efficiency. It's not just what we do in our homes where we work to improve energy efficiency without materially raising the cost of the home, it's also what we offer in the studio and the many options that consumer can pick from, and also get educated on energy efficiency level homeownership. If you haven't been to one of our studios, I encourage you to go. It's where the consumer has fun. There's a lot of energy at our studios. The tough decision is buying a home. When they move in to the Studio process, it's the optimal experience designing your own custom home.

Another tailwind for us as we move through '13 is the benefits we're now receiving in our partnership with Nationstar Mortgage. The Built to Order approach can't work, can't hit it's stride without a reliable mortgage partner that will help you manage your starts and also ensure timely closings. We're already experiencing more predictable deliveries in a compressed timeframe from this partnership.

As an example, I shared on the call in the first quarter the Nationstar averaged 15 days for final documentation, the loan papers being drawn and in turn, funding and closing after completion of the home, compared to 24 days for the outside lenders. Nine days, think of that if you can pick up 9 days and your delivery cycle every quarter what it means to your bottom line. In the current quarter, or in the first quarter, I'll say, we're inside the current quarter, Nationstar shortened that further to 13 days, so we picked up 2 more days in this process and I expect that you'll continue to see improvement in this area as the year unfolds. Nationstar now captures 60% of our mortgage originations on new orders and we expect this partnership over the year, will lead to more sales, lower can rate, better business productivity and happier home buyers.

In January, we announced the formation of Home Community Mortgage venture with Nationstar. We expect the transition to a venture to be seamless and to be completed by year end. Once operational, it will further align the interest of our 2 companies. I expect it to raise the attention or capture rates further. And also as we move into 2014, it'll be a source of earnings for us on a quarterly basis.

So in summary, I'll start with the KBnxt difference on the ground in the cities in which we operate. Our communities today are in highly desirable, high-growth markets. A fact-based approach ensures investment in the preferred neighborhoods with the right product price point and features. Our Built to Order strategy creates high-perceived value with the customer. Our goal is to operate a large business in each of our served markets to benefit from those synergies and the scale that comes with it. We now have even flow production with our backlog, and we targeted some cost savings through that process. We'll continue to be an industry leader in promoting sustainability and energy efficiency in our markets. And our brand is a strong one. We've had independent surveys done where our brand, overall, ranks #1 in the markets that we serve for brand identity. There's a lot of value to that in terms of generating more sales, referrals, the realtor network, everything that links together with our Built to Order process.

On the takeaway slide, our top priorities right now are to continue to enhance our profitability per unit. There's a lot of levers to be pulled there, and also to accelerate top line growth. We feel we can evolve this year. We plan to invest more than $1 billion on land acquisition and development. We're on offense, especially compared to last year, where we only invested a little over $500 million. We're the #1 home builder in California based on units. Arguably, the strongest housing market in the country, it's 50% of our revenue today.

Our investment strategy and our business model are working. We're generating significantly higher average sales prices, while maintaining an industry leading sales rate per community. Through enhanced business execution and operating leverage, we are improving our financial results. We remain committed to the first-time and first move-up home buyer, which are the largest consumers segments today. We see significant upside in market share in our served markets where we delivered 28,000 homes at the peak. Nationstar is gaining momentum. We'll also provide future earnings in '14. We have a spring coil from our existing growth platform with the synergies on cost, growing our revenue and market share.

Lastly, just to remind everyone on a macro level, that the housing industry is in the early stages of recovery. It's accelerating, but it's still at historically low levels and we have a long way to go to reach normalized activity and we intend to continue to benefit as the markets recover. We like our position, we're excited about our future. Jeff and I would now be happy to answer any questions you may have about KB Home.

Question-and-Answer Session

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Thanks, Jeff, I appreciate the comments. I think like previous presentations, I'm going to ask one or two questions to start it of. Let the questions perculate in the audience and then turn it over to the floor. One thing that I think is really the opportunity that you hit through a number of different angles is the margin expansion opportunity. And there are a lot of drivers, I think, to push that going forward. But just for perspective, I think it would be helpful and Jeff Kaminski if you also want to kind of chime in with your thoughts as well, but as it stands today and over the last 2 or 3 years, there has been a margin differential between yourself and the industry average of 200 or 300 basis points with KB being more in the 14%, 15% range and the industry being more 17% 18%, 19%. So I'm just wondering if you could just kind of walk through kind of the key components as you best understand it where the difference lies in terms of either the communities that you paid for, the impaired communities working off or identifiable areas that can break down that gap and how you see that changing going forward?

Jeffrey T. Mezger

Let me make a couple of comments then Jeff can share the numbers. First off, Mike, I look at it from an operating margin perspective, not gross margin or SG&A, because every builder accounts for gross a little bit differently. It's close, but it's still different. That's most important to us. And if you look at our operating margin, the combination just in our first quarter as I shared our adjusted operating margin, was 990 basis points better year-over-year, so a significant improvement in operating margin. And it came through both revenue per unit, gross margin percentage and SG&A, which came down significantly. Having said that, we've shared that our gross margin trend is going to continue this year and at the same time, through leverage, you'll see our SG&A continue to improve. So we have nice dynamics at the operating margin level both in the gross and the SG&A. Can we get some specifics, Jeff?

Jeff J. Kaminski

Right. I think, from our point of view right now, we're putting tremendous focus on margin improvement. And if you look just the first quarter alone, we were up over 400 points compared to the first quarter of the prior year. We intend to continue those tight comps. We are guiding towards improving margins sequentially as we go through 2013 that was included in our first quarter guidance during our conference call. And we're continuing to really focus the company on that key metric. We spent a lot of time, really over the last year or 1.5 years, talking about the new land strategy that we've been implementing, where we're going into better performing submarkets. We're moving up the square footage of our plans that we're delivering. We're seeing ASP increases 11 consecutive quarters now, due to a number of different factors, and Jeff is really focused on those components of our business and again, really balancing that pace versus price trade-off in the business, while at the same time, maintaining a proper pace to hit our revenue objectives. All that is contributing to it. When you talk about comparisons, other companies, it's a little bit tough to make those comparisons because we don't see the same level of detail with some of our peers as we do on their own company, and I will say we're very laser focused on improvements here at KB on a go forward basis.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

So just to be sure, you can try and answer the question in terms of, let's say where you were have been versus where you are today, is it fair to say that some of the initiatives that you've been putting in place over the last 6, 12 months that you expect to continue to reap benefit from, in other words, more focused on price over pace? Some of the better areas, better types of communities, better-located communities, is that kind of explaining where you had been before, the performance of the mid-teens margins that you're coming from versus where you're going?

Jeff J. Kaminski

Yes. I think it's never just one factor. There's been a number of things we've been -- and a number of leverage we've been pulling across the business. Each of our communities we're treating as individual assets and being managed as such. Certain communities where we have a large number of lots behind our current holding, we can move it at slightly higher pace, other ones we're protecting and really pushing price quite a bit harder. We're controlling the cost in the input side as well. There's been a lot of talk about labor and material cost inflation that we've seen in the business. We've offset those increases throughout 2012 and so far this year, in the first quarter, with what we've been doing on the pricing side, so that's been incrementally helping that differential as well. It's been helping on the gross margin improvement side. So yes, I think the results of the strategies that the company has put in place is definitely helping the margin performance.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division


Jeffrey T. Mezger

Mike, you touched on something that we haven't spoken too much about. We've mentioned it, but as our investment strategy has evolved, if you think about it, if you're in California where your average sales price upon location can be double the company average, our delivery there can move your ASP, your margins, everything, significantly. And if you're closing out of an older community, that's further inland, that 10% growth, but you're getting all your cash out and you're opening up 22% gross at the same time, adding much higher sales price on a coast, it's a nice combo and it is certainly part of what's driving our margin expansion right now, but we have a lot on the cost side, a lot on the revenue side, and in our investment in our community evolution is also a big driver.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Yes. Thanks, I appreciate it certainly. I can't help but understand where you're coming from and where you're going in the region, so I appreciate the detail. Second, I guess, as you look forward, we have a land banking panel coming up for lunch and that had been in the past cycle, a big part of land acquisition and instrumental in growth of a lot of companies. Where we are today in the development cycle, it's pretty still, I think, in the infancy state. I mean, there has been almost no development. A lot of developers went out of business over the past several years. How do you see different forms of capital finance, kind of going back into the industry, if that's something land banking, if that's something that you would consider in some of your markets. Certainly in California, you're more of a developer and you take care of your own land pipeline, primarily. But in other markets, essentially, that you would think as a viable option or something that you would consider?

Jeffrey T. Mezger

Well, we always consider how the acquisition should be structured. And the one point in time we were very active in the balance sheet financing. Today, we wouldn't need it. We have a very strong balance sheet, a lot of liquidity and we want to put our money to work. It's a trade off here because the off balance sheet cost your margin, but it helps share returns and depending on the asset, there's time that it may make sense. I think every company will have their own strategy between balance sheet management and profit management. And at some point in time, we may consider, but certainly, not in the short term.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Okay, thank you. I will turn it over to the floor for any questions.

Unknown Analyst

What percentage of your homes that you deliver are Built to Order? And second part is I'm just trying to better understand when you say the customer chooses the lot, the floor plan and the elevation, are they just choosing out of, say, a couple dozen or plans you've given or they actually tweaking the floor plan and tweaking the elevations?

Jeffrey T. Mezger

They don't tweak the floor plan or the elevation, but if you look at our communities versus the other new home builders, we will offer significantly more floor plans. In many cases, we'll offer 2 plans of the same square footage, single-story or 2, where to live differently, where one will have a 4 or 5 bedroom count, the other will have 3 and a great room or an in-law suite, or whatever. As we do our surveys and study the data, we'll ensure that we have enough product available in that community to cater to the high preferences for that consumer. We'll also have a significant number of structural options available to move also around in many cases, outside the footprint of the home to make it grow larger or change from bedrooms to dens, to great rooms and all that. On the elevation side, those are all locked down and approved by the city. So what we'll do, in some cases -- in some cities and communities, we'll have 6 elevations available and the typical builder will have 2 or 3. So we offer a lot of choice. And the consumer really enjoys that part of the process. If you think about it, when you're making the largest decision in your life, from a financial investment perspective, you want it to be your home, not a home that the builder picks for you. And we found it to be an incredible value to the consumer, overtime. So it's a vast majority, I don't know if we have moment [ph]

Jeff J. Kaminski

Retail versus [indiscernible] I mean, we target -- prime that range of 70% to 80% total order. We still offer some quick move-in homes in many of our communities and continue to maintain that for customers that need accelerated timing, but certainly the model is to be in that range of 70% to 80%.

Unknown Analyst

You talked about the spending ability in dollars this year. I don't recall whether you said kind of geographically, where you plan to spend that. And then within California, how is your land position changing? Are you investing more Inland or in Sacramento and kind of more the tertiary areas that have lagged a little bit to recover?

Jeff J. Kaminski

On the dollar amounts, the invested dollar amounts,, we haven't really guided by directly by region. About 1/2 of our company's total revenues are in California so proportionately, our investment, we expect to be over 50% just to maintain that type of mix. But the guidance on the $1 billion, frankly, I hope we spend more than. And I hope we're able to invest in assets that'll come to revenue relatively quickly and be very aggressive as we're going. Over the last 12 months ending the first quarter, we had invested about $800 million into land and land development. And it was part of Jeff's Going on Offense strategy that he rolled out for the company in the early part of 2012. The divisions are reacting very well to that strategy and really increasing their land search functions and bringing a lot of deals and land committee. And a lot of good deals. Frankly, we're quite excited about the future.

Unknown Analyst

With your very positive reputation for sustainable energy and water, are you moving that model beyond your bookends of California to Texas?

Jeffrey T. Mezger

Yes, it is pretty much company wide. I didn't touch on it here because we don't have that much time to brag about ourselves. I could talk all day about our sustainability initiatives. One of the things that we've done in every major market is introduce what we call a Net-Zero home. And we'll have a model in every major city, at least one, that with the solar, has the ability to have a 0 electric bill all year. Maybe higher at 1 month, but net overtime, it's 0. And we do that, not just to show what we can do on a volume basis, but also to showcase all the different options that are available in the home. And I know we just recently opened one in Florida, for instance on Net-Zero home, we have one on D.C, we have them all across Texas. And it continues to be a key initiative for us. I call it rolling thunder. Once a quarter we'll roll out an additional option or a standard item in the home that works very well for the consumer. And we've been doing this for a few years now and it is a big benefit to the consumer, if you can imagine. Just this last week or 2 weeks ago, at our Investor Conference, we are showing our base homes in San Diego, in Inland San Diego, as it gets very warm in the summer. I was in a 3,000 square-foot home where the electric bill is $80 a month and a resale that size in that area would be $400. So it's $300 a month in additional consumer buying power, buying our home versus the resale. So it's not just a differentiator against new homes, our toughest competitor overtime will be resale. And it's like lowering the price basically, for your home, affordability and the total cost of home ownership. Also works well with the cities, both on energy side, but also water. Water is a big issue for our industry and our country and all the water saving efforts that we put into play work well with the cities on gaining approvals.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

Jeff, on that topic of energy savings, I recall in the last year or 2, an initiative on a national basis from appraisals about incorporating in terms of the cost of ownership or the monthly mortgage payment, trying to move that to more broad basis and the total cost of ownership including energy, are you familiar with any developments in terms of moving that effort forward? If you could speak to that at all?

Jeffrey T. Mezger

Sure. What we now have Mike, that's different is not just a sense that this is the way to go. We have enough deliveries and track record as an industry to demonstrate that this is a better quality buyer. The default rates are now proven to be lower on energy-efficient homes than they are on non-energy efficient. State of Colorado just rolled out a requirement that HERS ratings are included on the listing, which is great for us. The resale community actually bought it because it makes our product a little more obsolete. I think that's a way for the future, and hopefully we see it across the country. On the political front, our builder group has been successful working with Congress on getting the bill put forth called to say that, which right now is stalled due to all the other budget challenges that they have. But I think they will move on it sometime later this year, where you would get additional underwriting benefit and appraisal benefit if you have a home that's at a certain energy standard. And In addition to that, FHA is looking at it as well where we provided actual history of utility bills for hundreds of homeowners now that demonstrate how much more money they have at the end of the month. And in the case of FHA, they can actually adjust the appraisals or the underwriting with a pen, it doesn't take a vote in Congress. So we're hopeful of that moves as well, but we continue to work on both those fronts.

Michael Jason Rehaut - JP Morgan Chase & Co, Research Division

We have time for one more question. Well, if not, we'll just close it there. Thanks, so much, Jeff and Jeff, and I appreciate your participation and we'll be continuing with the next presentation in I believe a quarter after the hour. So thank you.

Jeffrey T. Mezger

Thank you.

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