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Executives

Donald J. Tomnitz - Vice Chairman, Chief Executive Officer, President and Member of Executive Committee

Stacey H. Dwyer - Executive Vice President, Treasurer and In Charge of Investor Relations

Bill W. Wheat - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Mike Murray

Analysts

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

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

Daniel Oppenheim - Crédit Suisse AG, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Rob Hansen - Deutsche Bank AG, Research Division

Stephen Kim - Barclays Capital, Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Megan McGrath - MKM Partners LLC, Research Division

David Goldberg - UBS Investment Bank, Research Division

Alex Barrón - Housing Research Center, LLC

Timothy Jones

Stephen F. East - ISI Group Inc., Research Division

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

DR Horton (DHI) Q4 2012 Earnings Call November 12, 2012 10:00 AM ET

Operator

Good morning, and welcome to the D.R. Horton, America's Builder, the largest builder in the United States, Fiscal Year End and Fourth Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Donald J. Tomnitz, President and CEO. Thank you. You may begin.

Donald J. Tomnitz

Thank you, and good morning. Joining me this morning are Bill Wheat, Executive Vice President and CFO; Stacey Dwyer, Executive Vice President and Treasurer; and Mike Murray, now Senior Vice President and Controller. Before we get started, Stacey.

Stacey H. Dwyer

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 is no assurance that actual outcomes will not be materially different.

All forward-looking statements are based upon information available to D.R. Horton on the date of this conference call, and D.R. Horton does not undertake any obligation to publicly update or revise any forward-looking statements. Additional information about issues that could lead to material changes in performance is contained in D.R. Horton's annual report on Form 10-K and our most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission.

Don?

Donald J. Tomnitz

D.R. Horton's financial results in the fourth quarter and fiscal year 2012 were our strongest performance since 2006, reflecting the improving conditions in our housing markets and, most importantly, the effective repositioning of our company over the last 5 years.

For the fourth quarter, pretax income was $99.2 million, the highest of the last 22 quarters. Our quarterly net sales orders improved 24% from last year, and our average sales price contributed to a 35% increase in the value of net sales orders. Our positive year-over-year sales comparisons continued through October and into the first part of November. Our backlog of sales orders increased 49% compared to last year, and our backlog value is up 61%, which puts us in a position for a strong first quarter of fiscal 2013.

Fiscal 2012 was D.R. Horton's most profitable year in the last 6 years with $242.9 million of pretax income. Essentially all of our operating metrics improved in fiscal 2012 compared to fiscal 2011. Our sales, closings and backlog all increased by double-digit percentages.

Our gross margin on home sales revenues increased 160 basis points. Our SG&A as a percentage of homebuilding revenues improved 100 basis points.

In response to our sales growth, we have increased our investments in homes under construction, finished lots, land and land development to position ourselves for future growth. Our increased investments also include the acquisition of the homebuilding assets of Breland Homes during the quarter, the 38th largest homebuilder in the U.S. in 2011 according to Builder magazine.

These investments are fueling our increasing profits even though macroeconomic conditions and outlook remain soft and uncertain. We are finding opportunities to take market share in existing markets while evaluating attractive new submarkets. Our entry-level business remains strong while we're expanding our product offerings for move up buyers.

To fuel our expected growth, we entered into a revolving credit facility during the year and raised $700 million of additional capital through 2 senior note issues, both at very attractive interest rates. Even after these capital raises, our balance sheet remains extremely strong, with net homebuilding leverage of only 21% and gross leverage of 39%.

Bill?

Bill W. Wheat

In the fourth quarter, our homebuilding operations generated pretax income of $85.7 million compared to $27.4 million in the year-ago quarter. Our financial services operations generated pretax income of $13.5 million compared to $6.4 million in the year-ago quarter. Our net income for the quarter increased to $100.1 million, or $0.30 per diluted share.

Our diluted share count this quarter included 38.3 million shares related to our convertible senior notes. When these shares are dilutive, they're added to the diluted EPS denominator, and the associated interest expense and amortized issuance costs are added back to net income to calculate diluted EPS. In the first quarter of fiscal 2013, we estimate that these shares and the related costs would be included in our diluted EPS only if quarterly pretax income is approximately $140 million or higher, which after applying a 38% income tax rate, would be approximately $87 million of net income.

For fiscal 2012, we generated pretax income of $242.9 million compared to $12.1 million in fiscal 2011. Our net income for the year increased to $956.3 million, which included a tax benefit of $713.4 million, primarily from the reduction in the valuation allowance for our deferred tax assets that we recorded in the June quarter.

Stacey?

Stacey H. Dwyer

Our fourth quarter home sales revenues increased 20% to $1.3 billion on 5,575 homes closed, up from $1.1 billion on 4,987 homes closed in the year-ago quarter. Our average closing price for the quarter was $231,100, up 7% compared to the prior year and up 3% sequentially. We expect that our backlog conversion rate will continue to revert closer to historical seasonal norms. For the first quarter, we expect our conversion rate to be in the mid-60% range.

Don?

Donald J. Tomnitz

Net sales orders for the fourth quarter increased 24% from last year to 5,276 homes. Our active selling communities were flat from the year-ago quarter. However, we expect our community count to increase 5% to 10% in fiscal 2013 compared to fiscal 2012.

Our average sales price on net sales orders of $237,800 increased 9% compared to the year-ago quarter and 2% sequentially. The cancellation rate for the fourth quarter was 27% compared to 29% on the year-ago quarter.

Our sales backlog at September 30, 2012, increased 49% from the prior year to 7,240 homes. The value of this backlog increased 61% to $1.7 billion from $1 billion a year ago. Our sales pace has continued to produce strong year-over-year order comparisons through October and into the first part of November.

Mike?

Mike Murray

Our gross profit margin on home sales revenue in the fourth quarter was 18.1%, up 200 basis points from the year-ago period. 150 basis points of the increase was due to improving market conditions resulting in fewer incentives and discounts and higher average selling prices, while 30 basis points of the increase was due to lower amortized interest and property taxes. The remaining 20 basis points of the increase was due to lower estimated costs for warranty and construction defect claims as a percentage of home sales revenues.

Our gross profit margin on home sales revenue for the fiscal year was 17.7%, up 160 basis points from the prior year. 120 basis points of the increase was due to improving market conditions resulting in fewer incentives and discounts and higher average selling prices, while 50 basis points of the increase was due to lower amortized interest and property taxes. These increases were partially offset by a 10-basis-point decrease due to higher estimated cost for warranty and construction defect claims as a percentage of home sales revenue.

Our expectation for our first quarter home sales gross margin is in the low 18% range, consistent with the fourth quarter. We expect further improvement in our margin in fiscal 2013 as compared to fiscal 2012.

Stacey?

Stacey H. Dwyer

Homebuilding SG&A expense for the quarter was $146 million compared to $124 million in the prior-year quarter. As a percentage of homebuilding revenues, SG&A improved 40 basis points to 11.2% from 11.6%.

For fiscal 2012, homebuilding SG&A expense was $529 million compared to $480 million in fiscal 2011. As a percentage of homebuilding revenues, SG&A improved 100 basis points to 12.5% from 13.5% a year ago. We are leveraging our fixed cost structure, while at the same time rebuilding the sales and production side of the business to meet increasing demand for our homes and mortgages.

Our number of employees increased 16% from a year ago to approximately 3,500 at September 30. In the first quarter of 2013, we expect our SG&A as a percentage of homebuilding revenues will increase seasonally from the fourth quarter due to fewer closings. For fiscal 2013, we expect our SG&A percentage to improve compared to fiscal 2012 as we close more homes and continue to leverage our fixed cost structure. Mike?

Mike Murray

Financial services pretax income for the quarter was $13.5 million, a 110% improvement from $6.4 million in the year-ago quarter. 84% of our mortgage company's loan originations during the quarter related to homes closed by our homebuilding operations. Our mortgage company handled the financing for 59% of our homebuyers this quarter, with virtually all loans meeting eligibility requirements for sale to Fannie Mae, Freddie Mac or Ginnie Mae.

FHA and VA loans accounted for 51% of our mortgage company's volume this quarter, down from 60% in the year-ago quarter. Our mortgage company's new borrowers during the quarter had an average FICO score of 716 and an average loan-to-value ratio of 91%. First-time homebuyers represented 49% of the closings handled by our mortgage company this quarter. Stacey?

Stacey H. Dwyer

Our income tax benefit for fiscal 2012 was $713.4 million. As we discussed on our last quarter conference call, we reduced our deferred tax asset valuation allowance by $716.7 million during third quarter based on our determination that it was more likely than not that we will generate sufficient income in future periods to realize the substantial majority of our deferred tax assets.

In the fourth quarter, our valuation allowance was reduced further for our fourth quarter income. Our net deferred tax asset on our balance sheet is $709.5 million at September 30, of which $188.9 million relates to our available carryforwards of net operating losses for tax purposes. The remaining deferred tax asset valuation allowance of $41.9 million at year end relates to certain state NOLs, which may not be realized due to shorter carryforward periods in those states.

Beginning in the first quarter of fiscal 2013, we expect to report income tax expense at a tax rate of approximately 38%. Until we have utilized our NOL carryforwards, the majority of the tax expense recorded will not require cash but will reduce the carrying value of our deferred tax asset. Bill?

Bill W. Wheat

Since June, our total inventory increased by approximately $304 million, reflecting a $110 million increase in homes in inventory and a $194 million increase in our land and lot inventory. Our homes in inventory at the end of September totaled 13,000 homes, up 800 from last quarter. As of September 30, 1,100 of our homes were models, 6,400 were speculative homes and 2,100 of the specs were completed. Don?

Donald J. Tomnitz

In our fourth fiscal quarter, our investments in land, lots and development costs totaled $491 million as we continue to buy new communities and replenish our finished lots supply to meet increasing demand. During the fiscal year, we spent $1.4 billion on land, lots and development cost, which is up from $790 million in the prior year.

We continue to purchase or option finished lots in many markets and are also investing in land acquisition and development opportunities to ensure we have adequate lot supplies in desirable markets. Our general underwriting guidelines on our new deals continue to be: a gross margin of 20% or higher and a 2-year return of initial cash.

At September 30, 2012, we controlled approximately 153,000 lots, of which 95,000 are owned and 58,000 are option. 25,000 of our owned lots and 35,000 of our option lots are finished. 60,000 total finished lots we control at year end are up 25% sequentially and 40% from a year ago. Mike?

Mike Murray

During the quarter, we purchased the homebuilding operating assets of Breland Homes for $105.9 million in cash. With the acquisition of Breland, we now operate in Huntsville, Alabama and the Gulf Coast of Mississippi, and we strengthened our position in the Mobile, Alabama market. At the date of acquisition, we acquired approximately 300 homes in inventory, 1,000 finished lots and entered into option contracts to control approximately 3,700 lots.

We also acquired a sales order backlog of 228 homes valued at $46.9 million. Subsequent to the acquisition date in August, our fourth quarter results include 118 net sales for $24.3 million and 114 closings for $22.4 million from the Breland operations. Bill?

Bill W. Wheat

To support our growth plans, we issued $350 million of 10-year 4.375% senior notes during the quarter. This increased our ending balance of homebuilding unrestricted cash and marketable securities to $1.3 billion. The balance of our public notes outstanding at September 30 was $2.3 billion. Our next debt maturity of approximately $172 million is in May 2013.

At September 30, our homebuilding leverage ratio, net of cash and marketable securities, was 21.4%, and our gross homebuilding leverage was 39.1%. During the quarter, we entered into a 5-year $125 million unsecured revolving credit facility. Subsequent to year end, we obtained additional commitments from banks and increased the size of the facility to $600 million. The facility's uncommitted accordion feature was also amended to allow an increase in the size of the facility to $1 billion. Don?

Donald J. Tomnitz

Our fiscal 2012 results reflect our consistent and dramatic efforts to reposition and strengthen our company through the recent downturn. Specifically, we just completed our most profitable quarter in the last 22 quarters and our most profitable fiscal year in 6 years. Our fiscal 2012 reflects increased sales, increased gross margins, increased closings, increased backlogs, increased ASPs, improved SG&A percentage. We are well positioned with our broad national footprint, which we kept largely intact throughout the downturn, our current inventory to capture demand, our land and lot position, our cash and marketable securities. We are focused on prudently and profitably increasing our industry-leading market share in 2013 and thereafter.

Finally, D.R. and I would like to personally thank our DHI teammates for their hard work and extraordinary industry accomplishments. We're excited by the opportunities we see in fiscal 2013 and beyond. Please keep up the good work.

This concludes our prepared remarks. Now we will host any questions you have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ken Zener with KeyBanc Capital Markets.

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Question. You're obviously [indiscernible] guidance. But [indiscernible] 5% to 10%. Historically, you've talked about your units under construction being roughly half of your forward 12 months delivery, which supply roughly 26,000 [indiscernible] kind of 35%. Would you say your past trends have changed as you look into fiscal 2013?

Bill W. Wheat

No, Ken. We wouldn't necessarily say that anything has changed. We're certainly trying to make sure we are in a strong position to support whatever growth the market will allow next year, and we're certainly focused on gaining market share in 2013. So we plan to do that through increasing our community count, and we're also going to make sure that our homes and inventory position is in a strong position to capture the growth.

Stacey H. Dwyer

One thing that we're very cognizant of, though, is if you take our 13,000 homes and multiply by 2, you come up with 26,000. From an inventory perspective, we think we're well positioned that we can deliver that. However, it's going to take the demand side of the equation as well. So we're ready for the demand, but we do need to see the demand to be able to meet those deliveries.

Bill W. Wheat

And then we'll continue to add homes and adjust our spec inventory and our lot inventory based on the demand we see.

Donald J. Tomnitz

And to help Stacey manage expectations, please recall that our 13,000 units also include 1,000 models. So we actually have 12,000 units that are for sale and closable.

Kenneth R. Zener - KeyBanc Capital Markets Inc., Research Division

Right. Okay, I got that. I guess another way to think about it, as the downturn progressed and you had more speculative units, which reflected first-time buyers, you said your spec count would kind of just mirror your first-time buyers. If they were 49%, do you expect that'll kind of change in 2013 related to your community mix and offerings?

Bill W. Wheat

Well, we'll see. It depends on demand. Right now, it's right in line with our first-time homebuyers. We're at 49% specs, and I believe we had 49% first-time homebuyers this quarter. We certainly have a strong first-time homebuyer business, and we plan on continuing to build on that. As the move-up part of the business and the build-to-order part of the business grows, that could result in a lower spec percentage. But we'll really just adjust with what we see in the market.

Donald J. Tomnitz

And please don't recall -- or please recall that our spec inventory has a tendency to increase specifically in December, January and February as we prepare for the selling season. So it's not unusual for our spec percentage to increase somewhere up in the mid-50% to 60% level.

Operator

Our next question comes from the line of Michael Rehaut with JPMorgan.

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

The first question I had was around gross margins. You've had nice improvement this year, particularly on a year-over-year basis, and you also mentioned that you expect first quarter to be in the low 18% range, so maybe in and around where it's been the last couple quarters, maybe a few bps higher. Some of your peers have had pretty good sequential improvement in the September quarter versus the June quarter as they've seen continued benefits from pricing and reduced incentives. How are you -- how do you see that come through in your own numbers? I guess you've had kind of steady gross margin sequentially. Perhaps if you could kind of discuss your pricing over the last 2, 3 quarters, how it's gone, and also to the extent that some of that's perhaps potentially been offset by higher land costs or material labor cost?

Donald J. Tomnitz

Well, clearly, I would say to you that we are seeing pricing power as we move from market to market to market. Also, with the extraordinarily low 4.5-months' supply of new homes available for purchase today, we believe that purchasing power will continue to increase. We also had 160 basis points, as we indicated, improvement in our gross margins, of which 120 basis points was due to fewer incentives.

Stacey H. Dwyer

Yes. And Mike, I think another thing you're seeing in our margin in particular is we began refreshing our inventory and tying up finished lot contracts way back in 2009. And so the mix of our closings that have been coming from those newer communities last year was already right around 50%. That continues to improve this year, but our margin should already reflect some of that repositioning effort in a year-over-year comparison.

Donald J. Tomnitz

As we continue to pursue new land and lot deals and approve them, we are still finding those deals meeting our underwriting guidelines, which is 20% greater -- 20% or equal to, greater -- equal to gross margins and our return of cash within the 24 months. So we do not see a lack of low -- or high-margin lot deals out there. We're not replacing our current lot position with less than 20% gross margin deals.

Bill W. Wheat

And when we put it all together, we do expect margins to probably improve slightly here in the first quarter, the low 18% range. And we do expect further improvement as we move through fiscal 2013, based on what we can see right now.

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

Great. Great. I appreciate that. Second question on the community count. You mentioned that it was flat, and I'm not sure if that was sequentially or year-over-year. Maybe you could clarify that. But looking into '13, you expected community count to be up 5% to 10%. And just want to also clarify on that, if that's an average growth of community count for '13 versus '12, which potentially might imply -- I mean, maybe we can just establish whether or not that growth would be kind of similar throughout the year, or if community count would be rising throughout the year, that you would end the year, let's say 4Q '13 over 4Q '12, at about a 10%-plus type number?

Bill W. Wheat

Sure. The flat community count was a year-over-year comparison. On a sequential basis, our community count -- our selling communities were up 3% sequentially. As we look at the year for fiscal 2013, the 5% to 10% range is a general range that we would expect to characterize the full year of fiscal 2013. Our average selling -- our communities are growing right now, and we would expect right now for that to continue to grow. But part of that's going to be based on the demand we see during fiscal 2013. So we feel like the 5% to 10% is a fair range based on what we can see today. Is it possible that if demand continues to improve we continue to invest and open new communities that we could be a 10% or better this time next year? That's certainly possible.

Donald J. Tomnitz

Clearly, our goal is, is to continue to increase our market share and our footprint, and we are not seeing a lack of good deals out there in the marketplace. We're seeing plenty of good deals to continue to replace our lot positions as we roll off from existing land and lot deals.

Operator

Our next question comes from the line of Dan Oppenheim with Credit Suisse.

Daniel Oppenheim - Crédit Suisse AG, Research Division

Was wondering, you were talking about the -- seeing plenty of good land deals out there. With the acquisition of Breland -- in the past, that would have been something -- entering those markets would have been something you would have done with your satellite market strategy. How do you think about the opportunities in terms of small company acquisitions in that style versus just land deals out there in terms of profitably growing market share over the coming year?

Mike Murray

We look at every deal and every market individually, and we will still enter new markets on a satellite basis. And we will still look at given opportunities. The Breland acquisition was a bit unique in that we were able to align ourselves with a very strong developer in those markets and maintain an ongoing relationship, that we would start with a large relationship and would continue to be able to be a significant supplier of lots to us for the coming years. We tied up 3,700 lots in addition to what we bought on day one. That takes a little bit of time to accumulate on kind of a greenfield or a satellite market strategy. So we felt very good about the ability to get into those markets in a big way quickly with that kind of a smaller company acquisition. But it's not to say that every market we enter into would have to be through acquisition. We're also still look at greenfields very seriously every time we evaluate an acquisition.

Donald J. Tomnitz

But there are a number of satellite opportunities and city opportunities available to us, primarily because of our low SG&A structure. And that permits us the opportunity to go into markets which other builders find unattractive.

Daniel Oppenheim - Crédit Suisse AG, Research Division

Got it. And then second question, just wondering what your goals would be in terms of price when you talked about the entry level versus doing more -- in terms of move-up as that market improves. Given where we are in terms of affordability right now and the rising rents that have been coming through in the rental market, why not just continue to really focus on that first-time market which you know so well? Is there not enough opportunity there?

Donald J. Tomnitz

I think there's extraordinary opportunities in the first-time housing market, as we see with our 49% of our business is first-time homebuyer. The key is though, is we see people coming into our model homes, there are a number of move-up buyers, people who are either deciding they're going to retire or their homes are worth a little bit more or if they're willing to accept the price they can get for their existing home and they're willing to pay current prices to get into a new community, which I feel and they feel has higher appreciation potential on a new home than an existing home. So I feel like, generally speaking, we are very well focused on both markets, the first time and the move-up buyer, and we don't want to leave that move-up buyer to any of our competitors.

Operator

Our next question comes from the line of Adam Rudiger with Wells Fargo.

Unknown Analyst

This is Joey on for Adam. My first question is if you could elaborate a little bit on your slowing backlog conversion. I know you gave some guidance for next quarter, next year, of mid-60s. But I was just wondering this quarter if there are any large things we should be aware [ph] of in terms of why it was slowing down?

Stacey H. Dwyer

This is really just a return to more normal operating metrics that we're seeing in gross margin and SG&A and also in our backlog conversion. We've seen an increase in the number of build-to-order homes in our backlog. And those, by definition, will just take a little longer for us to build and then deliver. Our spec percentage has worked down to where it's under 50% now. We were running with a higher spec percentage and, more specifically, a higher completed number of specs. We've worked that down, so we don't have the same immediate closing opportunities that we had before, which is really a more normal business model for us. So we still expect our conversion rate in this first quarter of 2013 to be elevated compared to historical norms. We typically see, in our first quarter, somewhere in the mid-50%. That'd be consistent in the second quarter. And then in the third quarter, we'd be getting into the 60% range. And in the fourth quarter, we might approach a 70% on historical levels. So the 76% we just realized compared to what we would typically run before the downturn is very normal. It's actually still high.

Donald J. Tomnitz

Please recall, though, as we've focused on that second-time homebuyer, they typically are buying a larger, more expensive home, and they're a little bit more discriminating than the first-time homebuyer. So as a result, it's taking a little bit longer to produce those, but it's still a very profitable segment of the industry that we continue to expand and we'll capitalize on.

Mike Murray

And also, a positive note on that is we have much better visibility with our backlog than we've had when we were converting 90-plus percent. So now when we look at our backlog and you're going to convert mid-60s, you still have more of that backlog that gives you visibility beyond just the next quarter.

Donald J. Tomnitz

And clearly, that gives us a much better opportunity in pricing power because when we are converting 90% of our backlog each and every quarter, a lot of that had to do with closing specs within 30 days, and we were struggling to meet sales goals and closing goals. So as a result, the fact that we have fewer or lower conversion, I think enhances our profitability on a go-forward basis.

Unknown Analyst

Great. My second question is if you could elaborate on your pricing power, what you talked about, seems like you're a little bit optimistic about it going forward. How do you see the pricing power versus raw material, labor cost inflation playing out over the next few quarters?

Donald J. Tomnitz

Well, clearly, we focus on the cost side of this business very, very closely, and we do that from a national purchasing basis with Brad Conlon, who leads our national purchasing region, as well as on a division by division and region by region. There are costs that are going up. As I've said for the last 20-some-odd years that I've been in this business, our goal is to control our increases and to make certain that we have pricing power as we move forward in market-by-market. As I look at the low inventory of finished homes, with just 4.5-month supply of new homes compared to where that number was, which I think it was double-digits at one point in time, 10-, 11-months' supply, clearly, the buyer who's coming into our subdivision has much more incentive and much more timing in order to make that purchase because there's not the excess inventory sitting out there in the marketplace. So the function of low inventory is going to increase our pricing power as we move forward.

Unknown Analyst

And just to clarify on that, your pricing power, is that relative to rising costs? Or is that just gross increasing prices...

Donald J. Tomnitz

It's a combination of both.

Operator

Our next question comes from the line of Joel Locker with FBN Securities.

Joel Locker - FBN Securities, Inc., Research Division

Just wanted to see what your incentive compensation was in your SG&A this year versus a year ago?

Stacey H. Dwyer

Joel, I'm not sure we have that number right in front of us at this moment. It was one of the larger increases in the quarter.

Donald J. Tomnitz

Yes, certainly. With the profitability of the company increasing, our incentive comp is largely based on the profitability at our division, region and our company level.

Stacey H. Dwyer

And it's also based on what our stock price. And so our stock price has had a very strong performance throughout the quarter. I'd be happy to follow up with you with a little bit more specific information on that.

Joel Locker - FBN Securities, Inc., Research Division

Sure. Just a follow-up on what your customer deposits were at the end of the fiscal year?

Donald J. Tomnitz

And just while they're looking that up, I will say that I believe that our management team at D.R., all the way to our regional presidents to our division presidents, are still the best buy in the industry. Got it?

Stacey H. Dwyer

Yes.

Mike Murray

$22.7 million. Customers made deposits on 7,240 units in backlog, average of just over $3,000 a unit.

Operator

The next question comes from the line of Nishu Sood with Deutsche Bank.

Rob Hansen - Deutsche Bank AG, Research Division

This is Rob Hansen on for Nishu. I just wanted to see if you could kind of describe the thought process around the $700 million in capital raises this year and if this was more opportunistic? Or are you kind of targeting some type of cash level or a debt-to-cap ratio? Yes, so I just wanted to get some thoughts around that.

Bill W. Wheat

That's really all of the above. We certainly as we see improved sales demand, we certainly have expectations to grow our business and are planning to increase our investments in our business. So we want to make sure we're in good position with our cash balances to support that growth. Certainly, the capital markets have been very favorable this past year, and certain windows have been extremely favorable. So we felt good about our execution on our debt deals and the rates we've been able to achieve there. So the timing of some of the deals was certainly opportunistic from a capital markets standpoint. As we go forward, we are targeting to still keep a healthy cash balance. We have been keeping a cash balance in excess of $1 billion. However, now that we have implemented a revolving credit facility with $600 million capacity, we probably will bring our cash balances down a bit. So it would not surprise us if our cash balances were below $1 billion in some future quarters, because we have the flexibility of the $600 million of extra liquidity available to us through our revolver. But in terms of our overall leverage targets, we would still expect to keep our gross homebuilding leverage in the 40% to 45% range or lower. And then our net basis would -- net leverage would simply be that less whatever cash balance we choose to keep.

Donald J. Tomnitz

And please realize, as we continue to grow our finished lot supply, there are adequate finished lot supplies available in most of our markets today. There are few of our markets where that finished lot supply is being depleted, and we are having to begin to develop lots for ourselves again. And as we move into this recovery, we will be developing a bigger and bigger percentage of our lots simply because there won't be a finished lot supply available in the marketplace.

Rob Hansen - Deutsche Bank AG, Research Division

And have you already started buying more -- a little bit more of this undeveloped land? Or -- it seems like that's somewhat of a change.

Donald J. Tomnitz

Yes, we have, and it's on a market-by-market basis. Let me clearly say, currently, the vast majority of the deals that we are approving at the corporate office and our regions are submitting to us are for finished lots that someone else owns. And a lot of those are rolling option deals where we're buying the lots as we need them. Some of them, there's such good pricing on them, and we have to be a first mover that we've had to cash out those finished lots. But we're supplementing that with development of land deals where we're buying the land and taking it through the -- actually, we're taking it through the entitlements, buying the land and then developing the lots. But that's a small percentage of our business of finished lots, but it will continue to increase as we move forward.

Bill W. Wheat

As we buy land and we develop land, we are still focused on achieving a cash return -- initial return of our cash of 24 months or less.

Rob Hansen - Deutsche Bank AG, Research Division

Okay. And then just one other question is you guys have been kind of an industry leader on the SG&A side. So with the Breland acquisition, is there any room for further expense control coming out of Breland? And was there any impact this quarter?

Mike Murray

Breland was a very well-run, profitable builder. It wouldn't take them long to be Hortonized. They were actually -- already ran a very low SG&A rate. So I don't look for a lot of improvement in their SG&A rate, but it does leverage more of our central resources across their revenue base. We didn't have to leverage up anything at corporate for the region level to support those operations.

Operator

Our next question comes from the line of Stephen Kim with Barclays.

Stephen Kim - Barclays Capital, Research Division

First question relates to your mortgage company statistics. Just want to, first of all, confirm, I think you said you had a 51% capture rate but -- if you could just correct me if I'm wrong there. But can you generally describe what you think the quality of the buyers, in terms of the credit quality of the buyers, is for the unit -- for the home buyers who are not going through your mortgage company? Would we generally be correct in presuming that these are probably higher-quality borrowers? Or would you think that, for whatever reason, that actually it's folks who are more credit challenged who would not be using your mortgage company?

Stacey H. Dwyer

First of all, the capture rate was 59%. And really, we don't have great visibility into the credit metrics for the people who don't go through our mortgage company. Part of our capture rate is driven by not having the mortgage company in every market where we operate. So there's a portion of just our national footprint we don't capture. And beyond that, really, what we usually hear is someone has an existing relationship with another lender or they've shopped our rates in the market. It's less about credit quality and more just about cost and opportunity.

Stephen Kim - Barclays Capital, Research Division

How about in terms of FHA exposure? For example, if someone was going to use an FHA loan, do you think that your capture rate for those kinds of loans would be higher than the 59%?

Stacey H. Dwyer

I don't know because we wouldn't know if they didn't use our mortgage company, if they used an FHA loan. Or I shouldn't say we wouldn't know that, but we don't track that. We just don't have that information.

Stephen Kim - Barclays Capital, Research Division

Okay, that's fine. That's fine. And then the second question I had related to your sub count again. I know that you've -- actually, I'm sorry, your SG&A. I know you got a couple of questions. But you're -- I'm intrigued by your commentary about the backlog turnover sort of getting back to a more normal kind of a level, and I think that, that reflects a pretty significant reduction from where you've been going. But if your backlog conversion ratio is getting back to normal, then that would imply perhaps that your community level efficiency might also begin to approach normalization. And yet your SG&A ratio for 2012 is in the mid-12% range. It's still significantly higher than what you've done in the past, which is more like 10%. So my question is if we're seeing backlog conversion ratios getting back to normal in 2013, how long do you think it'll be before we start to see SG&A as a percentage of your homebuilding revenues back to something closer to normal as well?

Bill W. Wheat

Well, it's certainly -- it's on the path to getting back to normal. We had 100 basis points improvement in our SG&A ratio this year, even while backlog conversion rates also declined this year. We would expect further leverage on our SG&A as we grow in the coming year. And whether that's -- we're back to 10%, the timing will depend on how much the top line grows and how much we're able to leverage. But we believe we will continue to make steady progress back to our industry-leading level of 10% SG&A.

Donald J. Tomnitz

Steve, this sort of goes back to one of my favorite comments by Todd Horton, "No good deed shall go unpunished." We have one of the leading, if not the leading, SG&A rates in the industry. And you're wondering when it's going to get lower. Well, believe me, we're focused on getting that lower, but we pretty much have a core -- if you look at our SG&A for the year, as I recall, it ran $529 million, which is down from like $1.5 billion at the peak. So as a result, I think where we are today, we have a core group of people, core operators, and the business will continue to grow and increase. And that'll drive down our SG&A percentage.

Operator

Our next question comes from the line of Jade Rahmani with KBW.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

I wanted to ask on your overall lot count and open communities. Do you happen to know how many lots or what percentage of the total is represented by communities that are currently open?

Donald J. Tomnitz

We don't have that at our fingertips here, Jade. We can do some checking and get back to you on that.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. On the deals you're doing, is the number of lots per community increasing?

Donald J. Tomnitz

I would say yes. But again, I'd go back to my earlier statement and that is, with our low SG&A, we can do much smaller deals than the typical builder. And we do, do. We'll do deals of 20-lot subdivisions all the way up to 200-lot subdivisions. So it's increasing largely because of the fact that a lot of the deals that we're seeing out of the banks and the developers are larger positions that they're just now bringing to market. And so we are focusing on clearly those larger deals because, as we say, it takes the same amount of time to do a 20-lot deal as it does a 200-lot deal. Again, our focus is largely on how do we get our initial cash investment back within 24 months.

Bill W. Wheat

And if you go back a little over a year ago, our cash return hurdle was 12 months. So we were doing very small communities, primarily only finished lots at the time. So as the market has turned, we are certainly willing to do a little bit larger communities as long as we can get our initial cash back.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And then regarding mothballed communities, since your land held for development decreases, is it safe to assume you de-mothballed communities? And could you indicate how many you currently have mothballed?

Bill W. Wheat

We have pulled some mothballed communities into production. The land held for development dollars of $644 million is a decline from where it's been. That now represents about 41,000 lots. And I believe this time a year ago, it was around 44,000 or somewhere in that ballpark. So we pulled a few thousand lots out of mothball.

Donald J. Tomnitz

And as the market continues to recover ever so slightly, we will and are beginning to take obviously pieces of land out of our mothballed assets. There are assets though in there that could be in there for the next 3 to 5 years, but we will take them out as the market dictates, but they're economically feasible for us to do so.

Mike Murray

And it's not -- all of those assets are not all mothballed. Some of them may be future phases of deals that we're currently active in the front of. We just have -- we don't expect to get to those phases for -- generally over 12 to 18 months, is our classification window there.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. And can you give an indication of what the cash outlays per community would be to de-mothball a community?

Bill W. Wheat

Yes, that varies widely. Typically, it is land that requires development so we would be having to put in almost the full amount of development typically for each lot that we pull out. But the total cash outlays really will be over an extended period of time, and we'll evaluate them one deal, one parcel, one phase of lot development at a time.

Operator

Our next question comes from the line of Megan McGrath with MKM Partners.

Megan McGrath - MKM Partners LLC, Research Division

We've heard some other builders talk recently about some shortages on the labor side. So I'd be -- interesting to hear as the biggest builder what you're seeing out there in terms of your subs and getting labor in the different markets?

Donald J. Tomnitz

There is some shortage out there of labor. Clearly, our subcontractors don't feel as, I guess good about the future of the economy, the macro side of the economy. So they cut back on a number of their crews during the downturn. And they're reluctant in some cases and slow in other cases to build their crews back up to where they were before. So as a result, we are dealing with labor shortages in certain markets. But the wonderful thing about D.R. Horton is we still start more homes than anybody else in the industry. We are attracting the labor pool, and our labor pool is growing to support us because a lot of our labor pool works exclusively for D.R. Horton, and they've been with us for a number of years. So they trust us to go ahead and begin to expand their businesses as our business begins to expand.

Megan McGrath - MKM Partners LLC, Research Division

Great. And since you mentioned the subs outlook for the future, Don, you've been willing in the past to kind of talk about your outlook for the U.S. housing market. Could you tell us kind of what you're thinking over the next 12 months?

Donald J. Tomnitz

Clearly, what we see today, especially with our record backlog -- or I shouldn't say record backlog, our backlog being up 49% in terms of units and 61% in terms of dollars, we feel like we're well positioned for 2013. Unless we have some sort of macro situation with the U.S. economy, we feel comfortable that we'll have a much better 2013 than we did 2012. Again, I get back to the one overriding driving force in our industry, and that is job creation. And I still don't see a lot of jobs being created. And I also see the fact that there are potential layoffs in a number of industries, especially the defense industry, which could adversely affect our business. I also believe that a number of small businesses are not incentivized to grow their business as much. They're having difficulty growing their businesses and the taxes and the fees and so forth that are coming their way with healthcare and other types of things. And I also believe that clearly, there's not a focus on a nationwide basis to help those small businesses grow. I think a lot of it is focused more on large businesses and unions, and I think it's going to be difficult as we move forward to generate the number of jobs in this country that we need for us to have a strong housing market on a 2- to 3-, 5-year basis. I just think 2013, unless something adversely affects that I don't see on the horizon right now, we're going in with eyes wide open and great expectations.

Operator

Our next question comes from the line of David Goldberg with UBS.

David Goldberg - UBS Investment Bank, Research Division

The first question I want to ask, there's obviously -- there's been -- and Megan mentioned a lot of kind of conversations around labor and labor shortages, and I want to ask a question from a different perspective. What I want to try to get an idea, as the labor forces in your subcontractors look to kind of gear up their businesses, how well financed are they to kind of fund their own internal expansion? Where are they getting the money to get bigger? And is that something that concerns you guys as you look forward?

Donald J. Tomnitz

Well, clearly, lending has not -- commercial lending has not increased to the level that it should be, or certainly where it was. You bring up a good point. A lot of those subcontractors are dealing pretty much on a cash-by-cash basis, and not a lot of lending is available to them. One of the things I believe that helps our subcontractors is Horton has a sterling reputation of paying on time, and we help support those subcontractors grow their businesses. They need to be paid on a more frequent basis than what we typically pay our subcontractors, we'll work with those subcontractors until they get enough cash flow and they can could grow their businesses to support our operations. So again, we've got a great reputation with our subcontractors. We appreciate them very much, and we're trying to help them grow to support our business.

David Goldberg - UBS Investment Bank, Research Division

Got it. My follow-up question was on the 2-year kind of cash on land purchases. That was obviously -- that was extended at one point because the opportunity and the confidence you have around the housing rebound, plus the opportunity set that you were facing suggested will you take on a little bit longer time frame in terms of cash-to-cash on land deals. The question is -- and I get that you're seeing a lot of deals right now, and there's a lot of good deal flow. What I'm trying to understand is what would get you to push that out again? When is it not going to be 24 months cash-to-cash, but maybe now it's going to have to get to 36 months or maybe something in between, 30 months? Just give me an idea kind of the cash flow and the dynamics from the land perspective would be great.

Donald J. Tomnitz

I'd say we'd have to have increasing demand and increasing margins for us to take that additional risk of going from 24 to 36 months because as I've said on the conference call, what we're focused on is prudently and profitably growing this company. We've been to the movie before, this was my fourth downturn and I think Horton's fourth downturn also. Clearly, the biggest risk in this business is land ownership for too long a period of time. And I've mentioned to you, I believe on other conference calls, we started at 12, we're at 24 months, and it's going to take increasing profitability and increasing demand for us to go to 36. I personally don't believe seeing us buy anything that has a greater return than 36 months of our initial cash. We can keep it for 36 months or less. I think we reduced the risk profile of this company dramatically to position ourselves for the next downturn because clearly, we're going through a small upturn. And hopefully, that upturn will grow. But we all know one thing for certain, there'll be another downturn on the horizon, and we want to be positioned better for the next downturn than we were for the past downturn.

David Goldberg - UBS Investment Bank, Research Division

Is it creating limitation on the speed at which you can grow given that kind of -- given that overview?

Donald J. Tomnitz

Absolutely no, sir. We have plenty of deals to do with a 2-year return of initial cash and no adverse effect on our growth at all. All a matter of structuring the deal, managing our land development plans efficiently and making sure that we're always focused on returning our cash.

Operator

Our next question comes from the line of Alex Barrón of Housing Research Center.

Alex Barrón - Housing Research Center, LLC

I wanted to ask you about your land strategy. I guess land prices have moved up in certain markets or many markets this year. And so I'm kind of wondering, are you guys moving out, further out where there's still cheaper lots? And are you also, in some instances, selling land that you think might be overvalued?

Donald J. Tomnitz

Well, we're not selling a lot of land right now. We are seeing increasing land prices, but they're muted. We're still, as we said, focused on, Alex, our 20% gross margin underwriting hurdle. I don't see increasing land prices adversely affecting our ability to do deals. There seem like to be plenty of deals out there for cities, our divisions and our regions to meet our growth expectations at this stage at an increasing gross margin level.

Stacey H. Dwyer

And I don't think we're intentionally moving further out. We may selectively do some communities that are a little further out, but our real focus is on staying in the A and the B locations. If we do choose to do something that's a little further out, it's probably going to be under an option contact where we've got a lot of flexibility and not through land ownership.

Alex Barrón - Housing Research Center, LLC

Okay. And I also wanted to ask you about the kind of buyers that you saw this year. I know you guys have that DHI Home Buyers Club, so I'm wondering what percent of the buyers were people that came out of -- went through a foreclosure and were renting and now you guys turned them into owners again? And what percentage of the buyers might have been investors?

Donald J. Tomnitz

Well, I don't believe we have a good feel on who's an investor today. I know that we, in certain divisions have found there are certain hedge funds coming into specific markets. Our regional presidents and division presidents have identified those. And we're not interested in selling to -- our business is selling to people who are going to live in the home. And one of our focuses in our communities is I think there are plenty of rental opportunities available in the country. In our subdivisions where we're building, selling and closing homes, we're looking for home buyers who are going to be homeowners and who are going to live in that community. They take better care of their home, so it's something that we monitor pretty closely, the best that we can.

Alex Barrón - Housing Research Center, LLC

And on the Home Buyers Club?

Donald J. Tomnitz

Home Buyers Club represented, I think, right at about 6% of our buyers this year.

Stacey H. Dwyer

Those would not have all gone through a foreclosure process, though. Just to be clear, the last I had asked about that, it was a very low single-digit percentage of our buyers that had actually gone through a foreclosure process and then were back in as buyers.

Donald J. Tomnitz

And most of our Home Buyer Club members, Alex, are people who are just not aware of how the financial system works. And ours is largely an educational process to help them understand how the system works because they're being penalized by the system for not understanding how the system works. And we explain to them how they can manage their credit better such that the system evaluates them properly.

Operator

Our next question comes from the line of Timothy Jones with Moloney Securities.

Timothy Jones

I go back long enough to the 1970s, the mid-'70s, when the speculators were coming in. I remember one builder was getting individual speculators, buying up to 5 homes in 1 subdivision, and that builder threatened to fire any salesman that sold a spec home because he'll come back and bite you as competitors, as prices go up. You said yes, you're monitoring the large hedge funds, but how are you monitoring the relatively small speculator, they'll buy 3 to 5 homes in the subdivision, especially since only about half, a little more have been half of your loans are coming through your own facilities? This can obviously turn into a bad problem if that gets out of line. You said you're trying to monitor it. I can understand the large hedge funds but how do you keep the smaller guys out from doing it?

Donald J. Tomnitz

Tim, first of all, let me clarify that what I said about the hedge funds was -- is that we've been aware -- our regional presidents and division presidents have been made aware that certain hedge funds have come into certain of our subdivisions attempting to buy multiple homes. But we and I are incapable of managing any hedge fund. Those guys are a lot more pervasive and probably a lot smarter than we are. But I think to answer your question directly, multiple buyers in the same marketplace come up rather easily if it's the same corporation, if it's the same individual. So as a result, what we're focused on once again, and I don't know how we can do it other than being aware of who the person is, who's the buyer. And if it's multiple -- same name, same family, same LLC, whatever that we are focusing, selling to people who are homeowners and who are going to live in our communities, largely because of the fact that, you're right. At some point in time, we compete with them. We don't want to compete with them. And secondly, we want to make sure the people who are buying our homes are enhancing our community by taking care of their homes and their lawns, and a lot of those people who are investors rely upon, and my brother can speak to this very clearly in New Port Richey, Florida, where there are a number of people who are in his cul-de-sac who were renters of assets owned by investors and that investors didn't maintain the homes when they were not rented. And when they were rented, the renters had a tendency to not take care of their homes either. So it's something that we focus on. We're going to do the best job we can, but we can't eliminate all of them.

Bill W. Wheat

And Tim, as we look across all of our markets right now, we're really not seeing a lot of that activity right now, but that's certainly something that's on our radar that we're on the watch out for.

Timothy Jones

A second question. Talking to D.R. about 18 months ago, I had the impression that he wanted to pick up market share by increasing your trade up. I understood it to be units, not sales, to trade up buyers by about 10 percentage points. It looks like your first-time units have stayed roughly flat at 50%. Why haven't you been able to increase this percentage on a unit basis, not on a dollar basis?

Stacey H. Dwyer

I think part what you're seeing in our product mix is the first-time homebuyer is a self-reported box checked on a mortgage application. And while we have seen a consistent and actually declining from 2010, 2011 to the current level of 49%, percentage of first-time homebuyers, some of the first-time homebuyers have waited longer to buy houses. And so they're not buying your traditional first-time home. So even though they may still be a true first-time homebuyer when they check the box, the product that they're buying is at a higher price point. So you're seeing the mix shift show up in our average sales price kind of regardless of what's going on with the first-time homebuyer mix.

Operator

Our next question comes from the line of Stephen East with ISI Group.

Stephen F. East - ISI Group Inc., Research Division

D.T., you had really strong orders in the Southeast and the West and fairly low order growth in the Southwest and South Central. Can you compare and contrast what's going on there? And how much of that is driven by lack of communities in the Southwest, et cetera?

Donald J. Tomnitz

Well, I'd say the Southeast in particular is the fact that they have entered into a number of additional deals that the Southwest has not. They've grown their community count at a faster pace than the Southwest. I would also say to you that the Southeast has many more multiple markets than what our Southwest market does in terms of satellites and cities, reporting to divisions and reporting to region. The other thing I would say to you in terms of the West is that -- hard to believe, hard for me to believe, but California is improving. And as D.R., who was just recently out there in the last 2 or 3 weeks, indicated that during the downturn, we were struggling to get one net sale per community per month in California. And currently we're getting a lot closer to one net sale per week per community. And as a result, the overall demand is just increasing in the West. And given the state of the California economy, I have no idea why that is the case. But definitely, our demand in California from our buyers is increasing.

Bill W. Wheat

And then Stephen, with respect to the South Central, that primarily is Texas for us. Obviously, Texas is our strongest area. It has also been the most stable area. It didn't go down nearly as much during the downturn. We've seen it be our most consistently profitable area. And to the extent that we're still able to grow that area and grow our market share in Texas, we think that still represents a strength for our company.

Stephen F. East - ISI Group Inc., Research Division

Okay. And then you all talked about whether you're buying A, B or C lots within a market. Where are you primarily allocating your total dollars by market, or sort of rank ordered?

Donald J. Tomnitz

I'm not going to get into really where that is. Like I said earlier, to the extent that I will get into it is, is that if you take a look at the eastern half and the southeastern half of the United States, that's where our community count has grown more dramatically than elsewhere. And I think that...

Stacey H. Dwyer

Yes. When we file our K, we'll have our lot position by region, and you'll be able to see which of the regions are showing the stronger owned lot increases and also the option lot increases.

Operator

Our next question comes from the line of Jack Micenko with SIG.

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

Thinking about spec a little bit, so you've got, let's call it, I guess, 12,000 adjusted spec now. And obviously, you talked about ramping that up into fiscal 1 and 2 quarters next year, given the selling season. Can you talk about where that net '12 kind of might go to? And why not take it up even maybe even higher, just given sort of the demand characteristics right now and the supply situation?

Donald J. Tomnitz

Well, we're prudently increasing our specs based upon the time of the year and market-by-market where we're seeing the best demand. Increasing specs for this company is an easy thing, and Bill Wheat is shaking his head over there. But at this stage in the fiscal year, we're running pretty much the right percentage, we believe, of our specs, and we've got an effort under way in the company to start a number of specs over the course of the next 2 months. And we're underway with that, have been underway with that for the last 30 days. And I know when you come -- when we report our Q1 spec percentage, I wouldn't be surprised if that's not up closer to the low 50s to mid-50s percent.

Bill W. Wheat

Yes, this is -- Jack, this is ordinary course for us. I would expect that we will have more than 12,000 homes in inventory at December and then into the January, February, March period.

Donald J. Tomnitz

Unless sales increase so dramatically that they continue to deplete our specs as we start them. And that would be a great problem to have.

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

Is it, to some extent, somewhat of a margin protection plan at this point? Kind of wait to see what the demand looks like and kind of hold the line of margin?

Donald J. Tomnitz

No, it really isn't. Because when we go start a spec, our goal is 20%. Obviously, we're not at 20% yet, but it's not really a spec. It's not really a margin issue. It's just where we believe we have the right number of specs. And as you may recall, realtors sell a large, large percentage of our homes. So we try to make certain in each community that we have the right number of specs to satisfy our realtor clientele because -- and relocation because the combination of people being relocated, which is not as many as it once was. But clearly, our realtor business is still a big percentage of our business, and they have one attribute in common. They want to be able to collect their commission as quickly as possible. And so as a result, the spec inventory helps them accomplish that.

Bill W. Wheat

Yes, and it's just managing the pace and the flow of our spec inventory. Our actual total inventory actually went up from June to September, which you typically would not see that in our business. So we are starting to prepare. But today is November 12. The selling season will begin at the end of January, so we still have a little time to continue starting homes, and we will continue starting homes so we have a pace and a flow of homes heading into the spring.

Donald J. Tomnitz

The other thing, our build-to-order business has continued to increase. And so as a result, what we are focused on primarily, between specs and build-to-order, is to get our build-to-order houses in the ground so that we can get them closed and satisfy those buyers. And to that extent, the spec starts are going to have to take a backseat to our build-to-order business.

Jack Micenko - Susquehanna Financial Group, LLLP, Research Division

Okay. And then just one last question. On the financial services side, I think the margin came in a fair amount quarter-to-quarter. Gain on sale margins still in the business, pretty high. Anything one-time or unusual there that brought the margin in?

Bill W. Wheat

Nothing unusual at all. Financial services, anytime they're achieving greater than a 30% operating margin, that's in a good range for us.

Operator

We have reached the allotted time for our question-and-answer session. I would like to hand the floor back over to Mr. Tomnitz for any closing comments.

Donald J. Tomnitz

Thank you. Again, D.R. and I want to thank all of our DHI teammates for having muddled through some tough times in '07, '08 and '09. We had made money in '10 and made money in '11. But we congratulate you because in fiscal year '12, we made a profit in each quarter of the year and had a nice profit for the fiscal year. So we couldn't have done it without you. As Horton says, it's all about the people, and we sincerely appreciate all the people who have been with us through the downturn. Obviously, we've increased our hiring from -- we got down to a low of 2,700 teammates and we're up to 3,500. So it's -- a lot of good things are happening at D.R. Horton. We welcome the new teammates and we look forward to a very good 2013. And we hope that '14, '15 and '16 continue to improve for us. So thank you very much.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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