What changed in this filing

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Item 1. Business

2020-11-20 compared with 2019-11-25 · 108 added, 76 removed, 241 unchanged (43% of the section changed)

11 unchanged sentences

Our business operations consist of homebuilding, a majority-owned residential lot development company, financial services and other activities.

Our homebuilding operations are our core business, generating 97% of our consolidated revenues of $17.6 billion and $16.1 billion in fiscal 2019 and 2018 , respectively, and 98% of our consolidated revenues of $14.1 billion in fiscal 2017 .

Our homebuilding operations are our core business, generating 97% of our consolidated revenues of $20.3 billion, $17.6 billion and $16.1 billion in fiscal 2020, 2019 and 2018, respectively.

Our homebuilding operations generate most of their revenues from the sale of completed homes and to a lesser extent from the sale of land and lots.

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During fiscal 2018, we acquired 75% of the outstanding shares of Forestar Group Inc.

(Forestar) for $558.3 million in cash.

Forestar is a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar is a component of our homebuilding strategy to enhance operational efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts to enhance operational efficiency and returns.

We owned approximately 66% of Forestar’s outstanding common stock at September 30, 2019 .

(Forestar), a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar is a component of our homebuilding strategy to enhance operational and capital efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts.

At September 30, 2020, we owned 65% of Forestar’s outstanding common stock.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets.

DHI Mortgage, our 100% owned subsidiary, provides mortgage financing services primarily to our homebuyers and generally sells the mortgages it originates and the related servicing rights to third-party purchasers.

DHI Mortgage, our 100% owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the majority of the related servicing rights to third-party purchasers.

DHI Mortgage originates loans in accordance with purchaser guidelines and sells substantially all of its mortgage production shortly after origination.

Our subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to our homebuyers.

Our 100% owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to our homebuyers.

In addition to our homebuilding, Forestar and financial services operations, we have subsidiaries that engage in other business activities.

These subsidiaries conduct insurance-related operations, construct and own income-producing rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets.

These subsidiaries conduct insurance-related operations, construct and own income-producing multi-family rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets.

The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and presented as other.

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We make available, as soon as reasonably practicable, on our website, www.drhorton.com , all of our reports required to be filed with the Securities and Exchange Commission (SEC).

These reports can be found on the “Investor Relations” section of our website under “Financial Information” and include our annual and quarterly reports on Form 10-K and 10-Q (including related filings in XBRL format), current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports.

These reports can be found on the “Investor Relations” section of our website under “Financial Information” and include our annual and quarterly reports on Form 10-K and 10-Q, current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports.

Our SEC filings are also available to the public on the SEC’s website at www.sec.gov.

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Our financial statements and the notes thereto contain additional information regarding segment performance.

Reporting Region/Market

Southeast Region

Central Delaware

Northern Delaware

Mobile/Baldwin County

State Reporting Region/Market State Reporting Region/Market

East Region Midwest Region

Delaware Central Delaware Colorado Denver

Northern Delaware Fort Collins

Georgia Savannah Illinois Chicago

Maryland Baltimore Indiana Fort Wayne

Suburban Washington, D.C.

Northern New Jersey

Fort Myers/Naples

Southern New Jersey

North Carolina

New Jersey Northern New Jersey Iowa Des Moines

Southern New Jersey Minnesota Minneapolis/St.

North Carolina Asheville Ohio Cincinnati

Charlotte Columbus

Greensboro/Winston-Salem

Melbourne/Vero Beach

Raleigh/Durham

Miami/Fort Lauderdale

South Carolina

Pensacola/Panama City

Greenville/Spartanburg

Tampa/Sarasota

Volusia County

West Palm Beach

Northern Virginia

Southern Virginia

Midwest Region

Minneapolis/St.

Los Angeles County

Riverside County

South Central Region

San Bernardino County

San Diego County

Oklahoma City

Ventura County

Bryan/College Station

Killeen/Temple/Waco

Midland/Odessa

Raleigh/Durham South Central Region

Wilmington Louisiana Baton Rouge

Pennsylvania Central Pennsylvania Lake Charles/Lafayette

Philadelphia Oklahoma Oklahoma City

South Carolina Charleston Texas Austin

Columbia Bryan/College Station

Greenville/Spartanburg Dallas

Hilton Head Fort Worth

Myrtle Beach Houston

Virginia Northern Virginia Killeen/Temple/Waco

Southern Virginia Midland/Odessa

New Braunfels/San Marcos

Portland/Salem

Salt Lake City

Seattle/Tacoma/Everett

Southwest Region

Southeast Region San Antonio

Alabama Birmingham

Huntsville Southwest Region

Mobile/Baldwin County Arizona Phoenix

Montgomery Tucson

Tuscaloosa New Mexico Albuquerque

Florida Fort Myers/Naples

Gainesville West Region

Jacksonville California Bakersfield

Lakeland Bay Area

Melbourne/Vero Beach Fresno

Miami/Fort Lauderdale Los Angeles County

Ocala Modesto/Merced

Orlando Riverside County

Pensacola/Panama City Sacramento

Lucie San Bernardino County

Tampa/Sarasota San Diego County

Volusia County Hawaii Oahu

West Palm Beach Nevada Las Vegas

Georgia Atlanta Reno

Augusta Oregon Bend

Mississippi Gulf Coast Portland/Salem

Tennessee Chattanooga Utah Salt Lake City

Knoxville Washington Seattle/Tacoma/Everett/Olympia

Memphis Spokane

Nashville Vancouver

When evaluating new or existing homebuilding markets for purposes of capital allocation, we consider local, market-specific factors, including among others:

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• New and secondary home sales activity;

• Competition;

• Prevailing housing products, features, cost and pricing;

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Economies of Scale

We are the largest homebuilding company in the United States in fiscal 2019 as measured by number of homes closed, and we are also one of the largest builders in many of the markets in which we operate.

We are the largest homebuilding company in the United States in fiscal 2020 as measured by number of homes closed, and we are also one of the largest builders in most of the markets in which we operate.

We believe that our national, regional and local scale of operations provides us with benefits that may not be available to the same degree to some other smaller homebuilders, such as:

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therefore, most of our direct homebuilding activities are decentralized to provide flexibility to our local managers in making operational decisions.

We believe that our local management teams, who are familiar with local conditions, have the best information to make many decisions regarding their operations.

We believe that our local management teams, who are familiar with local market conditions, have the best information to make many decisions regarding their operations.

At September 30, 2020, we had 53 separate homebuilding operating divisions, many of which operate in more than one market area.

Generally, each operating division consists of a division president;

a controller;

a controller and accounting personnel;

land entitlement, acquisition and development personnel;

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These contracts generally are non-recourse, which limits our financial exposure to our earnest money deposited into escrow under the terms of the contract and any pre-acquisition due diligence costs we incur.

This enables us to control land and lot positions with limited capital investment, which substantially reduces the risks associated with land ownership and development.

This enables us to control land and lot positions with limited capital investment, which substantially reduces the risks associated with land ownership.

We directly acquire almost all of our land and lot positions.

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Our Express branded communities primarily accommodate a segment of entry-level buyers who are focused on affordability.

We introduced our Freedom Homes brand in 2016 to offer homes at affordable price points to active adult buyers seeking a low-maintenance lifestyle.

Our Freedom Homes brand offers homes at affordable price points to active adult buyers seeking a low-maintenance lifestyle.

The percentage of home closings and home sales revenue contributed by each brand during fiscal 2020 was as follows:

Percentage of

Home Closings

Percentage of

Home Closings Percentage of

Home Sales Revenue

Horton 63 % 66 %

Emerald 2 % 3 %

Express 32 % 28 %

Freedom 3 % 3 %

Total 100 % 100 %

We also use names of acquired companies for a period of time after the acquisition.

We currently utilize the Pacific Ridge Homes brand in our Seattle, Washington market;

the Westport Homes brand in our Indianapolis and Fort Wayne, Indiana and Columbus, Ohio markets;

the Lexington Homes brand in our Spokane, Washington market;

and the Terramor Homes brand in our Raleigh, North Carolina market.

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As a percentage of gross sales orders, cancellations of sales contracts were 20% in fiscal 2020 compared to 21% in fiscal 2019.

The length of time between the signing of a sales contract for a home and delivery of the home to the buyer (closing) is generally from two to six months ;

therefore, substantially all of the homes in our sales backlog at September 30, 2019 are scheduled to close in fiscal year 2020 .

The length of time between the signing of a sales contract for a home and delivery of the home to the buyer (closing) is generally from one to six months;

therefore, substantially all of the homes in our sales backlog at September 30, 2020 are scheduled to close in fiscal 2021.

Customer Service and Quality Control

4 unchanged sentences

In addition, some of our suppliers provide manufacturer’s warranties on specified products installed in the home.

Single-Family Rental Properties

During fiscal 2020, several of our homebuilding divisions began constructing and leasing homes as single-family rental properties.

After these rental properties are constructed and achieve a stabilized level of leased occupancy, the properties in each community are expected to be marketed in bulk for sale.

At September 30, 2020, our homebuilding fixed assets included $87.2 million of assets related to our single-family rental platform representing approximately 740 single-family rental homes and finished lots, including approximately 440 completed homes.

There were no bulk sales of single-family rental properties in fiscal 2020.

Forestar Residential Lot Development Operations

During fiscal 2018, we acquired 75% of the outstanding shares of Forestar.

Forestar is a residential lot development company with operations in 51 markets and 20 states as of September 30, 2019 .

Forestar is a residential lot development company with operations in 49 markets across 21 states as of September 30, 2020.

We owned approximately 65% of Forestar’s outstanding common stock at September 30, 2020.

Forestar is a component of our homebuilding strategy to enhance operational efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts to enhance operational efficiency and returns.

Forestar is making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform.

Forestar’s strategy is focused on making investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S.

lot development industry.

Our homebuilding operations acquire finished lots from Forestar in accordance with the master supply agreement between the two companies.

A shared services agreement is in place whereby we provide Forestar certain administrative, compliance, operational and procurement services.

As the controlling shareholder of Forestar, we strongly influence the strategic direction and operations of Forestar.

As the controlling shareholder of Forestar, we have significant influence in guiding the strategic direction and operations of Forestar.

Customer Mortgage Financing

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To limit the risks associated with our mortgage operations, DHI Mortgage originates loan products that we believe can be sold to third-party purchasers of mortgage loans, the majority of which are eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae).

DHI Mortgage sells substantially all of the loans and their servicing rights to third-party purchasers shortly after origination with limited recourse provisions.

DHI Mortgage sells substantially all of the loans and the majority of the related servicing rights to third-party purchasers shortly after origination with limited recourse provisions.

DHI Mortgage centralizes most of its control and oversight functions, including those related to loan underwriting, quality control, regulatory compliance, secondary marketing of loans, hedging activities, accounting and financial reporting.

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Through our subsidiary title companies, we serve as a title insurance agent in selected markets by providing title insurance policies, examination and closing services primarily to our homebuilding customers.

We currently assume little or no underwriting risk associated with these title policies.

Insurance Agency

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Through DHI Communities, a 100% owned subsidiary, we develop, construct and own multi-family residential properties that produce rental income.

DHI Communities is primarily focused on constructing garden style multi-family products, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets.

After DHI Communities has completed construction and achieved a stabilized occupancy rate, the property is typically marketed for sale.

We currently have four projects under active construction and two projects that are substantially complete, one of which was under contract to sell at September 30, 2019 .

During fiscal 2019, DHI Communities sold two multi-family rental properties for $133.4 million and recorded gains on sale totaling $51.9 million .

At September 30, 2019 , DHI Communities had total assets of $204.0 million , which included property and equipment of $153.9 million and other assets of $28.9 million for a property held for sale.

At September 30, 2019 , we employed 8,916 persons, of whom 1,908 were sales and marketing personnel, 2,532 were involved in construction, 2,552 were office personnel and 1,924 worked in mortgage and title operations.

We focus significant attention toward attracting and retaining talented and experienced individuals to manage and support our operations, and we believe that we have good relations with our employees.

DHI Communities is primarily focused on constructing garden style multi-family communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets.

After DHI Communities has completed construction and achieved a stabilized level of leased occupancy, the property is typically marketed for sale.

DHI Communities had five projects under active construction and one project that was substantially complete at September 30, 2020.

These six projects represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units.

During fiscal 2020 and 2019, DHI Communities sold multi-family rental properties for a total of $128.5 million and $133.4 million, respectively, and recorded gains on sale totaling $59.4 million and $51.9 million.

At September 30, 2020 and 2019, our consolidated balance sheets included $246.2 million and $204.0 million, respectively, of assets related to DHI Communities.

Human Capital Resources

As of September 30, 2020, we employ 9,716 people, of whom 6,818 work in our homebuilding operations, 2,163 in our financial services segment, 463 at our corporate office, 143 for our Forestar subsidiary and 129 in our other businesses.

Of our homebuilding employees, 2,666 are involved in construction, 1,996 are sales and marketing personnel and 2,156 are office personnel.

We believe the people who work for our company are our most important resources and are critical to our continued success.

We focus significant attention toward attracting and retaining talented and experienced individuals to manage and support our operations.

We offer our employees a broad range of company-paid benefits, and we believe our compensation package and benefits are competitive with others in our industry.

Additional information about our employee benefit plans is included in Note K.

Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions.

We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees.

Our focus on retention is evident in the length of service of our executive, regional and divisional management teams.

The average tenure of our executive team and homebuilding region presidents is 27 years and the average tenure of our homebuilding division presidents and city managers is greater than 10 years.

We are committed to hiring, developing and supporting a diverse and inclusive workplace.

Our management teams are expected to exhibit and promote honest, ethical and respectful conduct in the workplace.

All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.

During fiscal 2020, despite the COVID-19 pandemic (C-19), we increased the number of employees in all of our operating segments and kept all of our employee compensation and benefit plans intact.

We have implemented safety protocols to protect our employees and our homebuyers during the pandemic.

These protocols include complying with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Many of our administrative and operational functions during this time have required modification, including some of our workforce working remotely.

Our experienced teams of people adapted to the changes in our work environment and have managed our business successfully during this challenging time.

Business Acquisitions

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We seek to limit the risks associated with acquiring other companies by conducting extensive operational, financial and legal due diligence on each acquisition and by performing financial analysis to determine that each acquisition will have a positive impact on our earnings within an acceptable period of time.

During fiscal 2019, we acquired the homebuilding operations of Westport Homes, Classic Builders and Terramor Homes for $325.9 million .

The assets acquired included approximately 700 homes in inventory, 4,500 lots and control of approximately 4,300 additional lots through land purchase contracts.

We also acquired a sales order backlog of approximately 700 homes.

Westport Homes operates in Indianapolis and Fort Wayne, Indiana, and Columbus, Ohio;

Classic Builders operates in Des Moines, Iowa;

and Terramor Homes operates in Raleigh, North Carolina.

The homebuilding and lot development industries are highly competitive.

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These regulations and requirements affect substantially all aspects of our land development and home design, construction and sales processes in varying degrees across our markets.

Our homes are inspected by local authorities where required, and homes eligible for insurance or guarantees provided by the Federal Housing Administration (FHA) and the Department of Veteran Affairs (VA) are subject to inspection by them.

Our homes are inspected by local authorities where required, and homes eligible for insurance or guarantees provided by the Federal Housing Administration (FHA) and the U.S.

Department of Veteran Affairs (VA) are subject to inspection by them.

These regulations often provide broad discretion to the administering governmental authorities.

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Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again in the future, we generally close more homes and generate greater revenues and operating income in the third and fourth quarters of our fiscal year.

The seasonal nature of our business can also cause significant variations in our working capital requirements in our homebuilding, land development and financial services operations.

The seasonal nature of our business can also cause significant variations in our working capital requirements in our homebuilding, lot development and financial services operations.

As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of our fiscal year.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business