DR Horton, Inc. (NYSE:DHI) reported its fourth quarter and fiscal year 2011 earnings report and in its subsequent conference call, the company answered the following analysts’ questions we thought you’d like to know.
Stephen Kim – Barclays Capital asked: Could you give us a sense for how you modulate incentives? Is there sort of a companywide approach or rubric by which modulate incentives or is there leeway given to divisional managers?
Donald J. Tomnitz – Vice-Chairman, President and CEO responded: We ask our divisions’ president to hit their sales and closing targets. They control their level of incentives at the local level, while trying to hit their bonus points and their bonus plan; this is to achieve for the large part, 20 percent gross margins and 10 percent SG&A.
We’re not hitting those targets yet, but that’s what they’re getting paid to hit. They’re trying to balance their incentives and their discounts in the marketplace, and hit their sales goals, closing goals and bonus points.
Nishu Sood – Deutsche Bank asked: My question is about debt repurchases. You have brought your debt balances down while maintaining your cash balances. Going forward into next year, how much further will you go? Your cash balance has come down to 724 unrestricted plus the restricted amount and the $425 million or so you mentioned on the debt repurchase authorization.
What is the plan going forward here?
Bill W. Wheat – EVP and CFO responded: We look at our cash and our marketable securities, which combined are both unrestricted. We are at $1 billion.
Our target cash and marketable securities balance at year end is $1 billion; we are basically sitting at our target level. With that and our balance sheet, we expect our debt repurchases to decline in pace versus what we saw this past year.
Our balance sheet is in good shape so we can generate additional cash flow, in excess of what we need to run the business. We could devote more of that to debt purchases, but we expect the pace of debt repurchases to slow.
Adam Rudiger – Wells Fargo Securities, LLC asked: If you look at the buyers if there is any kind if pattern emerging or could you categorize where the bulk of your buyers come from? What trends are you seeing?
Donald J. Tomnitz – Vice-Chairman, President and CEO responded: We’re focusing more on the move-up buyer, which is becoming an increasing part of our business.
We have 53 percent of our buyers are first-timers. That’s down from 58 percent in 2010. We have built in both those segments during the 2000 to 2007 timeframe. We’re probably focused on more than 40 percent on the first-time buyer and the rest on the move-up buyer.
Our plan implemented several quarters ago is to focus more on that second-time buyer that is being seen both in the percentages.