What changed in this filing

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Item 1. Financial Statements

2021-04-26 compared with 2021-01-27 · 256 added, 132 removed, 674 unchanged (37% of the section changed)

13 unchanged sentences

Mortgage loans held for sale 1,755.8 1,529.0

Deferred income taxes, net of valuation allowance of $ 7.5 million

at December 31, 2020 and September 30, 2020

Deferred income taxes, net of valuation allowance of $ 7.4 million and $ 7.5 million

at March 31, 2021 and September 30, 2020, respectively

Property and equipment, net 895.0 683.7

9 unchanged sentences

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 396,696,502 shares issued

and 363,647,879 shares outstanding at December 31, 2020 and 394,741,349 shares issued

and 360,479,511 shares outstanding at March 31, 2021 and 394,741,349 shares issued

and 363,999,982 shares outstanding at September 30, 2020

1 unchanged sentence

Retained earnings 11,333.5 9,757.8

Treasury stock, 31,741,367 shares and 30,741,367 shares at December 31, 2020

Treasury stock, 36,216,991 shares and 30,741,367 shares at March 31, 2021

and September 30, 2020, respectively, at cost

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(In millions, except per share data)

42 unchanged sentences

$ 4.0 $ 3,236.9 $ 10,476.7 $ ( 1,232.4 ) $ 285.1 $ 12,770.3

Net income — — 929.5 — 4.4 933.9

Exercise of stock options ( 391,047 shares)

— 1.4 — — — 1.4

Stock issued under employee benefit plans ( 916,209 shares)

— 3.2 — — — 3.2

Cash paid for shares withheld for taxes — ( 56.6 ) — — — ( 56.6 )

Stock-based compensation expense — 25.4 — — — 25.4

Cash dividends declared ($ 0.20 per share)

— — ( 72.7 ) — — ( 72.7 )

Repurchases of common stock ( 4,475,624 shares)

— — — ( 350.4 ) — ( 350.4 )

Change of ownership interest in Forestar and other — ( 1.9 ) — — 23.4 21.5

Balances at March 31, 2021 ( 360,479,511 shares)

$ 4.0 $ 3,208.4 $ 11,333.5 $ ( 1,582.8 ) $ 312.9 $ 13,276.0

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Continued)

Stock Additional

20 unchanged sentences

$ 3.9 $ 3,182.0 $ 8,006.8 $ ( 965.3 ) $ 275.5 $ 10,502.9

Net income — — 482.7 — 1.3 484.0

Exercise of stock options ( 310,032 shares)

— 6.2 — — — 6.2

Stock issued under employee benefit plans ( 954,588 shares)

— 2.6 — — — 2.6

Cash paid for shares withheld for taxes — ( 20.8 ) — — — ( 20.8 )

Stock-based compensation expense — 21.3 — — — 21.3

Cash dividends declared ($ 0.175 per share)

— — ( 64.1 ) — — ( 64.1 )

Repurchases of common stock ( 4,000,000 shares)

— — — ( 197.3 ) — ( 197.3 )

Balances at March 31, 2020 ( 363,537,810 shares)

$ 3.9 $ 3,191.3 $ 8,425.4 $ ( 1,162.6 ) $ 276.8 $ 10,734.8

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(In millions)

14 unchanged sentences

( 975.2 ) ( 324.2 )

(Increase) decrease in other assets ( 124.9 ) 2.0

Net decrease in mortgage loans held for sale 90.1 46.9

Increase in other assets ( 295.2 ) ( 153.1 )

Net increase in mortgage loans held for sale ( 226.8 ) ( 307.4 )

Increase in accounts payable, accrued expenses and other liabilities 818.1 152.7

5 unchanged sentences

Return of investment in unconsolidated entities 2.2 2.4

Net principal decrease (increase) of other mortgage loans and real estate owned 0.2 ( 0.6 )

Net principal increase of other mortgage loans and real estate owned ( 1.5 ) ( 0.6 )

Payments related to business acquisitions ( 24.2 ) ( 5.6 )

3 unchanged sentences

Repayment of notes payable ( 400.1 ) ( 918.9 )

Payments on mortgage repurchase facility, net ( 163.5 ) ( 38.6 )

Advances on mortgage repurchase facility, net 70.9 297.6

Proceeds from stock associated with certain employee benefit plans 5.6 12.9

5 unchanged sentences

( 0.1 ) ( 0.4 )

Net proceeds from issuance of Forestar common stock 23.3 —

Other financing activities

( 2.2 ) ( 2.3 )

Net cash (used in) provided by financing activities ( 457.2 ) 453.0

7 unchanged sentences

Accrual for holdback payments related to acquisitions $ 1.4 $ 3.9

Repurchase of common stock not settled $ 16.0 $ —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2020

March 31, 2021

NOTE A – BASIS OF PRESENTATION

14 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

therefore, the operating results for the three months ended December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021 or subsequent periods.

therefore, the operating results for the three and six months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2021 or subsequent periods.

Business Acquisition

In October 2020, the Company acquired the homebuilding operations of Braselton Homes for approximately $ 23.0 million in cash.

Braselton Homes operates in Corpus Christi, Texas.

In October 2020, the Company acquired the homebuilding operations of Braselton Homes in Corpus Christi, Texas for approximately $ 23.0 million in cash.

The assets acquired included approximately 90 homes in inventory, 95 lots and control of approximately 840 additional lots through purchase contracts.

11 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE B – SEGMENT INFORMATION

18 unchanged sentences

These operations are reported in the Company’s homebuilding segment.

During the three months ended December 31, 2020, the Company completed its first sale of a single-family rental community representing 124 homes for $ 31.8 million, resulting in a gain on sale of $ 14.0 million.

At December 31, 2020, the Company’s homebuilding fixed assets included $ 106.6 million of assets related to its single-family rental platform, representing 13 communities totaling 890 single-family rental homes and finished lots, which included 440 completed homes.

At September 30, 2020, the Company’s homebuilding fixed assets included $ 87.2 million of assets related to its single-family rental platform, representing 10 communities totaling 740 single-family rental homes and finished lots, which included 440 completed homes.

During the six months ended March 31, 2021, the Company completed its first sale of a single-family rental community representing 124 homes for $ 31.8 million, resulting in a gain on sale of $ 14.0 million.

At March 31, 2021, the Company’s homebuilding fixed assets included $ 182.6 million of assets related to 27 single-family rental communities compared to $ 87.2 million of assets related to 10 single-family rental communities at September 30, 2020.

At March 31, 2021, the Company’s single-family rental platform included 1,650 homes and finished lots, of which 570 homes were completed, compared to 740 homes and finished lots, of which 440 homes were completed at September 30, 2020.

The Forestar segment is a residential lot development company with operations in 54 markets across 22 states.

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

In addition to its homebuilding, Forestar and financial services operations, the Company engages in other business activities through its subsidiaries.

2 unchanged sentences

The Company’s multi-family rental operations develop, construct, lease and own multi-family rental properties, which are typically marketed for sale after achieving a stabilized level of leased occupancy.

At December 31, 2020, the Company had four multi-family rental projects under active construction and four projects that were substantially complete.

These eight projects represent 2,325 multi-family units, including 1,015 units under active construction and 1,310 completed units.

At December 31, 2020 and September 30, 2020, the consolidated balance sheets included $ 294.3 million and $ 246.2 million, respectively, of multi-family rental assets.

At March 31, 2021, the Company had eight multi-family rental projects under active construction and four projects that were substantially complete and in the lease-up phase.

These 12 projects represent 3,760 multi-family units, including 2,450 units under active construction and 1,310 completed units.

At March 31, 2021 and September 30, 2020, the consolidated balance sheets included $ 394.4 million and $ 246.2 million, respectively, of assets related to multi-family rental operations.

The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2020.

Financial information relating to the Company’s reporting segments is as follows:

December 31, 2020

March 31, 2021

Homebuilding Forestar (1) Financial Services Other Eliminations and Other Adjustments (2) Consolidated

33 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

September 30, 2020

35 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

Three Months Ended December 31, 2020

March 31, 2021

Three Months Ended March 31, 2021

Homebuilding Forestar (1) Financial Services Other Eliminations and Other Adjustments (2) Consolidated

15 unchanged sentences

469.5 16.3 123.7 11.9 0.1 621.5

Other (income) expense ( 1.8 ) ( 0.6 ) ( 6.3 ) 3.3 — ( 5.4 )

Income before income taxes $ 1,052.1 $ 37.6 $ 107.7 $ 0.1 $ ( 17.6 ) $ 1,179.9

______________

(1) Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.

(2) Amounts primarily represent the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

(3) Amount in the Eliminations and Other Adjustments column represents the profit on lots sold from Forestar to the homebuilding segment.

Intercompany profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

Six Months Ended March 31, 2021

Homebuilding Forestar (1) Financial Services Other Eliminations and Other Adjustments (2) Consolidated

(In millions)

$ 11,869.1 $ — $ — $ — $ — $ 11,869.1

Land/lot sales and other

37.2 594.2 — 30.0 ( 562.5 ) 98.9

Financial services

— — 412.3 — — 412.3

11,906.3 594.2 412.3 30.0 ( 562.5 ) 12,380.3

Cost of sales:

Home sales (3) 8,977.1 — — — ( 63.3 ) 8,913.8

Land/lot sales and other

26.5 495.8 — — ( 464.7 ) 57.6

Inventory and land option charges

11.2 0.9 — — — 12.1

9,014.8 496.7 — — ( 528.0 ) 8,983.5

Selling, general and administrative expense

920.6 31.8 233.3 21.5 0.2 1,207.4

Gain on sale of assets

( 13.1 ) — — ( 0.9 ) — ( 14.0 )

Other (income) expense ( 3.3 ) ( 1.1 ) ( 12.8 ) 7.1 ( 0.7 ) ( 10.8 )

3 unchanged sentences

$ 30.0 $ 0.2 $ 0.8 $ 8.0 $ 0.3 $ 39.3

Cash (used in) provided by operating activities

Cash provided by (used in) operating activities

$ 138.0 $ ( 249.5 ) $ ( 32.3 ) $ 4.2 $ ( 15.3 ) $ ( 154.9 )

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

Three Months Ended December 31, 2019

March 31, 2021

Three Months Ended March 31, 2020

Homebuilding Forestar (1) Financial Services Other Eliminations and Other Adjustments (2) Consolidated

15 unchanged sentences

361.8 11.2 85.9 7.8 0.1 466.8

Loss (gain) on sale of assets — 0.1 — ( 31.2 ) — ( 31.1 )

Gain on sale of assets — ( 0.3 ) — ( 28.2 ) — ( 28.5 )

Other (income) expense ( 4.1 ) ( 2.1 ) ( 6.1 ) 1.9 — ( 10.4 )

Income before income taxes $ 565.5 $ 13.7 $ 24.7 $ 28.0 $ ( 10.6 ) $ 621.3

______________

(1) Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.

(2) Amounts primarily represent the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

(3) Amount in the Eliminations and Other Adjustments column represents the profit on lots sold from Forestar to the homebuilding segment.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

Six Months Ended March 31, 2020

Homebuilding Forestar (1) Financial Services Other Eliminations and Other Adjustments (2) Consolidated

(In millions)

$ 8,226.6 $ — $ — $ — $ — $ 8,226.6

Land/lot sales and other

35.2 406.4 — 18.3 ( 373.2 ) 86.7

Financial services

— — 207.4 — — 207.4

8,261.8 406.4 207.4 18.3 ( 373.2 ) 8,520.7

Cost of sales:

Home sales (3) 6,487.0 — — — ( 17.7 ) 6,469.3

Land/lot sales and other

24.7 352.8 — — ( 324.6 ) 52.9

Inventory and land option charges

12.4 0.4 — — — 12.8

6,524.1 353.2 — — ( 342.3 ) 6,535.0

Selling, general and administrative expense

720.2 21.7 163.8 16.7 0.2 922.6

Gain on sale of assets

— ( 0.1 ) — ( 59.4 ) — ( 59.5 )

Other (income) expense ( 9.6 ) ( 4.2 ) ( 11.6 ) 3.5 — ( 21.9 )

Income before income taxes $ 1,027.1 $ 35.8 $ 55.2 $ 57.5 $ ( 31.1 ) $ 1,144.5

Summary Cash Flow Information:

1 unchanged sentence

$ 33.7 $ 0.1 $ 0.8 $ 3.9 $ 0.3 $ 38.8

Cash (used in) provided by operating activities

Cash provided by (used in) operating activities

$ 52.1 $ ( 123.8 ) $ ( 312.1 ) $ 5.5 $ ( 16.8 ) $ ( 395.1 )

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

Homebuilding Inventories by Reporting Segment (1)

11 unchanged sentences

(1) Homebuilding inventories are the only assets included in the measure of homebuilding segment assets used by the Company’s chief operating decision makers.

(2) Corporate and unallocated consists primarily of capitalized interest and property taxes.

(2) Corporate and unallocated consists primarily of homebuilding capitalized interest and property taxes.

Homebuilding Results by Reporting Segment Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(In millions)

12 unchanged sentences

Southwest 0.3 — 0.4 0.1

West 0.5 2.2 0.8 2.5

$ 3.2 $ 8.8 $ 11.2 $ 12.4

Income before Income Taxes

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE C – INVENTORIES

At the end of each quarter, the Company reviews the performance and outlook for all of its communities and land inventories for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary.

As of December 31, 2020, the Company performed detailed impairment evaluations of communities and land inventories with a combined carrying value of $ 33.5 million and recorded impairment charges of $ 5.6 million during the three months ended December 31, 2020 to reduce the carrying value of impaired land to fair value.

There were no impairment charges recorded in the prior year period.

During the three months ended December 31, 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 2.7 million and $ 3.8 million, respectively.

As of March 31, 2021, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended March 31, 2021.

During the six months ended March 31, 2021, impairment charges totaled $ 5.6 million.

There were $ 1.7 million of impairment charges recorded in the three and six months ended March 31, 2020.

During the three and six months ended March 31, 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 3.8 million and $ 6.5 million, respectively, compared to $ 7.2 million and $ 11.1 million in the same periods of fiscal 2020.

Inventory impairments and land option charges are included in cost of sales in the consolidated statements of operations.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE D – NOTES PAYABLE

22 unchanged sentences

____________________________

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 14.1 million and $ 10.7 million at December 31, 2020 and September 30, 2020, respectively.

(2) Homebuilding other secured notes excludes $ 3.8 million and $ 4.8 million of earnest money notes payable due to Forestar at December 31, 2020 and September 30, 2020, respectively.

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 13.3 million and $ 10.7 million at March 31, 2021 and September 30, 2020, respectively.

(2) Homebuilding other secured notes excludes $ 2.7 million and $ 4.8 million of earnest money notes payable due to Forestar at March 31, 2021 and September 30, 2020, respectively.

These intercompany notes are eliminated in consolidation.

(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 8.4 million and $ 8.9 million at December 31, 2020 and September 30, 2020, respectively.

(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 7.9 million and $ 8.9 million at March 31, 2021 and September 30, 2020, respectively.

Homebuilding:

4 unchanged sentences

The maturity date of the facility is October 2, 2024.

At December 31, 2020, there were no borrowings outstanding and $ 151.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately $ 1.44 billion.

At March 31, 2021, there were no borrowings outstanding and $ 143.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.45 billion.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

In April 2021, the Company’s senior unsecured homebuilding revolving credit facility was amended to extend its maturity date to April 20, 2026.

The maturity date may be extended subject to the approval of lenders holding a majority of the commitments.

The capacity of the homebuilding revolving credit facility was increased to $ 2.19 billion with an uncommitted accordion feature that could increase the size of the facility to $ 3.0 billion, subject to certain conditions and availability of additional bank commitments.

In May 2020, the Company entered into a credit agreement providing for a $ 375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 550 million, subject to certain conditions and availability of additional bank commitments.

The interest rate on borrowings under the 364-day revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility.

The maturity date of the facility is May 27, 2021.

There were no borrowings outstanding under the facility at December 31, 2020.

There were no borrowings outstanding under the facility at March 31, 2021.

This facility is not expected to be renewed upon its maturity on May 27, 2021.

The Company’s homebuilding revolving credit facilities impose restrictions on its operations and activities, including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if the leverage ratio exceeds a certain level.

3 unchanged sentences

The credit agreements governing the facilities and the indentures governing the senior notes also impose restrictions on the creation of secured debt and liens.

At December 31, 2020, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facilities and public debt obligations.

At March 31, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facilities and public debt obligations.

Horton has an automatically effective universal shelf registration statement filed with the SEC in August 2018, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

4 unchanged sentences

The authorization has no expiration date.

All of the $ 500 million authorization was remaining at December 31, 2020.

All of the $ 500 million authorization was remaining at March 31, 2021.

Forestar has a $ 380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 570 million, subject to certain conditions and availability of additional bank commitments.

2 unchanged sentences

Letters of credit issued under the facility reduce the available borrowing capacity.

At December 31, 2020, there were no borrowings outstanding and $ 40.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 339.5 million.

The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

The maturity date of the facility is October 2, 2022.

At March 31, 2021, there were no borrowings outstanding and $ 46.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 334.0 million.

In April 2021, Forestar’s revolving credit facility was amended to extend its maturity date to April 16, 2025.

The maturity date may be extended subject to the approval of lenders holding a majority of the commitments.

The capacity of Forestar’s revolving credit facility was increased to $ 410 million with an uncommitted accordion feature that could increase the size of the facility to $ 600 million, subject to certain conditions and availability of additional bank commitments.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

The Forestar revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants.

2 unchanged sentences

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

At March 31, 2021, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

In April 2021, Forestar issued $ 400 million principal amount of 3.85 % senior notes that mature May 15, 2026 with interest payable semi-annually.

The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 4.1 %.

A portion of the net proceeds from the issuance of the notes will be used to redeem the $ 350 million principal amount of 8.0 % senior notes due April 15, 2024 in full, and the remainder of the proceeds will be used for general corporate purposes.

In April 2021, Forestar delivered notice for the full redemption of its $ 350 million principal amount of 8.0 % senior notes outstanding.

The redemption price of $ 365.6 million includes a call premium of $ 14.0 million and accrued and unpaid interest of $ 1.6 million.

The notes are scheduled to be redeemed May 7, 2021.

Forestar’s revolving credit facility and its senior notes are not guaranteed by D.R.

or any of the subsidiaries that guarantee the Company’s homebuilding debt.

At December 31, 2020, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

At March 31, 2021, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

Effective April 30, 2020, Forestar’s Board of Directors authorized the repurchase of up to $ 30 million of Forestar’s debt securities.

The authorization has no expiration date.

All of the $ 30 million authorization was remaining at December 31, 2020.

All of the $ 30 million authorization was remaining at March 31, 2021.

Financial Services:

1 unchanged sentence

DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility.

In February 2021, the mortgage repurchase facility was amended to increase its capacity and extend its maturity date to February 18, 2022.

The total capacity of the facility is $ 1.4 billion;

however, the capacity increased, without requiring additional commitments, to $ 1.575 billion for approximately 45 days around September 30, 2020 and increased again for approximately 30 days around December 31, 2020.

however, the capacity increases, without requiring additional commitments, to $ 1.633 billion for approximately 30 days at each quarter end and 45 days at fiscal year end.

The capacity of the facility can also be increased to $ 1.8 billion, subject to the availability of additional commitments.

The maturity date of the facility is February 19, 2021.

The Company is currently in discussions with its lenders and expects to renew and extend the facility on similar terms prior to its maturity date.

As of December 31, 2020, $ 1.31 billion of mortgage loans held for sale with a collateral value of $ 1.29 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 319.4 million, DHI Mortgage had an obligation of $ 969.1 million outstanding under the mortgage repurchase facility at December 31, 2020 at a 2.4 % annual interest rate.

As of March 31, 2021, $ 1.69 billion of mortgage loans held for sale with a collateral value of $ 1.66 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 454.8 million, DHI Mortgage had an obligation of $ 1.2 billion outstanding under the mortgage repurchase facility at March 31, 2021 at a 2.1 % annual interest rate.

The mortgage repurchase facility is not guaranteed by D.R.

2 unchanged sentences

These covenants are measured and reported to the lenders monthly.

At December 31, 2020, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

At March 31, 2021, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

NOTE E – CAPITALIZED INTEREST

2 unchanged sentences

During periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred.

During the first three months of fiscal 2021 and fiscal 2020, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three months ended December 31, 2020 and 2019:

During the first six months of fiscal 2021 and fiscal 2020, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and six months ended March 31, 2021 and 2020:

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(In millions)

4 unchanged sentences

__________________

(1) Interest incurred included interest on the Company's mortgage repurchase facility of $ 4.5 million and $ 4.7 million in the three months ended December 31, 2020 and 2019, respectively, and Forestar interest of $ 11.5 million and $ 8.7 million in those periods.

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 3.8 million and $ 8.3 million in the three and six months ended March 31, 2021, respectively, and $ 5.0 million and $ 9.7 million in the same periods of fiscal 2020.

Also included in interest incurred is Forestar interest of $ 11.5 million and $ 23.0 million in the three and six months ended March 31, 2021, respectively, and $ 9.7 million and $ 18.4 million in the same periods of fiscal 2020.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE F – PROPERTY AND EQUIPMENT

The Company’s property and equipment balances and the related accumulated depreciation at December 31, 2020 and September 30, 2020 are summarized below.

The Company’s property and equipment balances and the related accumulated depreciation at March 31, 2021 and September 30, 2020 are summarized below.

2021 September 30,

24 unchanged sentences

Property and equipment, net $ 895.0 $ 683.7

Depreciation expense was $ 17.8 million and $ 17.2 million during the three months ended December 31, 2020 and 2019, respectively.

Depreciation expense was $ 17.0 million and $ 34.8 million during the three and six months ended March 31, 2021, respectively, compared to $ 17.3 million and $ 34.5 million in the same periods of fiscal 2020.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE G – MORTGAGE LOANS

Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property.

At December 31, 2020, mortgage loans held for sale had an aggregate carrying value of $ 1.44 billion and an aggregate outstanding principal balance of $ 1.37 billion.

At March 31, 2021, mortgage loans held for sale had an aggregate carrying value of $ 1.76 billion and an aggregate outstanding principal balance of $ 1.73 billion.

At September 30, 2020, mortgage loans held for sale had an aggregate carrying value of $ 1.53 billion and an aggregate outstanding principal balance of $ 1.46 billion.

During the three months ended December 31, 2020 and 2019, mortgage loans originated totaled $ 3.5 billion and $ 2.3 billion, respectively, and mortgage loans sold totaled $ 3.6 billion and $ 2.3 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 138.9 million during the three months ended December 31, 2020 compared to $ 73.6 million in the prior year period.

During the six months ended March 31, 2021 and 2020, mortgage loans originated totaled $ 7.3 billion and $ 4.9 billion, respectively, and mortgage loans sold totaled $ 7.0 billion and $ 4.6 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 178.6 million and $ 317.4 million during the three and six months ended March 31, 2021, respectively, compared to $ 73.3 million and $ 147.0 million in the prior year periods.

Net gains on sales of loans and servicing rights are included in revenues in the consolidated statements of operations.

During the three months ended December 31, 2020, approximately 66 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae) or into securities backed by the Government National Mortgage Association (Ginnie Mae) and 27 % were sold to two other major financial entities.

In response to the COVID-19 pandemic (C-19), the U.S.

government has taken various actions to support the economy and the continued functioning of the financial markets.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included changes to current forbearance options for government-backed loans designed to keep homeowners in their homes.

During the six months ended March 31, 2021, approximately 54 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 37 % were sold to two other major financial entities.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included changes to forbearance options for government-backed loans designed to keep homeowners in their homes during the COVID-19 pandemic (C-19).

Due to the uncertainty surrounding these forbearance options, servicing values declined rapidly at the end of March 2020.

As a result, the Company began retaining the servicing rights on a portion of its loan originations.

Servicing values have since improved, and the Company sold a portion of its retained mortgage servicing rights in the three months ended December 31, 2020.

Servicing values have since improved, and the Company sold a portion of its retained mortgage servicing rights in the six months ended March 31, 2021.

The Company expects to continue retaining some servicing rights prior to selling them to third parties, typically within six months of loan origination.

At December 31, 2020 and September 30, 2020, the fair value of mortgage servicing rights was $ 9.8 million and $ 17.1 million, respectively, and is included in other assets in the consolidated balance sheets.

At March 31, 2021 and September 30, 2020, the fair value of mortgage servicing rights was $ 6.4 million and $ 17.1 million, respectively, and is included in other assets in the consolidated balance sheets.

The Company also uses hedging instruments as part of a program to offer below market interest rate financing to its homebuyers.

At December 31, 2020 and September 30, 2020, the Company had mortgage-backed securities (MBS) totaling $ 1.4 billion and $ 1.1 billion, respectively, that did not yet have interest rate lock commitments or closed loans created or assigned and recorded a liability of $ 7.5 million and $ 5.3 million for the fair value of such MBS position.

At March 31, 2021 and September 30, 2020, the Company had mortgage-backed securities (MBS) totaling $ 1.5 billion and $ 1.1 billion, respectively, that did not yet have interest rate lock commitments or closed loans created or assigned and recorded an asset of $ 5.0 million and a liability of $ 5.3 million, respectively, for the fair value of such MBS position.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

NOTE H – INCOME TAXES

The Company’s income tax expense for the three months ended December 31, 2020 and 2019 was $ 239.1 million and $ 90.8 million, respectively.

The effective tax rate was 23.1 % for the three months ended December 31, 2020 compared to 17.4 % in the prior year period.

The effective tax rates for both periods include an expense for state income taxes and tax benefits related to stock-based compensation and the federal energy efficient homes tax credit.

For the three months ended December 31, 2019, the retroactive reinstatement of the federal energy efficient homes tax credit for homes closed from January 1, 2018 to September 30, 2019 reduced the effective tax rate by 5.6 %.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 149.5 million at December 31, 2020 compared to $ 152.4 million at September 30, 2020.

The Company has a valuation allowance of $ 7.5 million at December 31, 2020 and September 30, 2020 related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized.

The Company’s income tax expense for the three and six months ended March 31, 2021 was $ 246.0 million and $ 485.1 million, respectively, compared to $ 137.3 million and $ 228.1 million in the prior year periods.

The effective tax rate was 20.8 % and 21.9 % for the three and six months ended March 31, 2021 compared to 22.1 % and 19.9 % in the prior year periods.

The effective tax rates for all periods include an expense for state income taxes and tax benefits related to stock-based compensation and the federal energy efficient homes tax credit.

For the six months ended March 31, 2020, the retroactive reinstatement of the federal energy efficient homes tax credit reduced the effective tax rate by 2.6 %.

For the three and six months ended March 31, 2021, a change in the estimate of homes qualifying for the fiscal 2020 retroactive extension of the energy efficient tax credit reduced the effective tax rate by 0.6 % and 0.3 %, respectively.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 150.2 million at March 31, 2021 compared to $ 152.4 million at September 30, 2020.

The Company has a valuation allowance of $ 7.4 million and $ 7.5 million at March 31, 2021 and September 30, 2020, respectively, related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized.

The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance with respect to the remaining state NOL carryforwards.

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Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

NOTE I – EARNINGS PER SHARE

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Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(In millions)

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$ 2.53 $ 1.30 $ 4.67 $ 2.46

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

March 31, 2021

NOTE J – STOCKHOLDERS’ EQUITY

Horton has an automatically effective universal shelf registration statement, filed with the SEC in August 2018, registering debt and equity securities that it may issue from time to time in amounts to be determined.

Forestar also has an effective shelf registration statement filed with the SEC in September 2018, registering $ 500 million of equity securities.

As of December 31, 2020, $ 394.3 million remained available for issuance under Forestar’s shelf registration statement, $ 100 million of which is reserved for sales under its at-the-market equity offering program that became effective in August 2020.

As of December 31, 2020, no shares had been issued under the at-the-market equity offering program.

Forestar also has an effective shelf registration statement filed with the SEC in September 2018, registering $ 500 million of equity securities, of which $ 100 million is reserved for sales under its at-the-market equity offering program that became effective in August 2020.

During the three months ended March 31, 2021, Forestar issued 1.0 million shares of common stock under its at-the-market equity offering program for proceeds of $ 23.3 million, net of commissions and other issuance costs.

At March 31, 2021, $ 370.6 million remained available for issuance under Forestar’s shelf registration statement, of which $ 76.3 million is reserved for sales under its at-the-market equity offering program.

Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock.

The authorization has no expiration date.

During the three months ended December 31, 2020, the Company repurchased 1.0 million shares of its common stock for $ 69.8 million.

The Company’s remaining authorization at December 31, 2020 was $ 465.5 million.

During the three months ended December 31, 2020, the Board of Directors approved a quarterly cash dividend of $ 0.20 per common share, which was paid on December 14, 2020 to stockholders of record on December 4, 2020.

In January 2021, the Board of Directors approved a quarterly cash dividend of $ 0.20 per common share, payable on February 25, 2021 to stockholders of record on February 17, 2021.

During the six months ended March 31, 2021, the Company repurchased 5.5 million shares of its common stock for $ 420.2 million.

The Company’s remaining authorization at March 31, 2021 was $ 115.1 million.

Effective April 20, 2021, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock, replacing the prior authorization.

The authorization has no expiration date.

During each of the first two quarters of fiscal 2021, the Board of Directors approved and paid quarterly cash dividends of $ 0.20 per common share, the most recent of which was paid on February 25, 2021 to stockholders of record on February 17, 2021.

In April 2021, the Board of Directors approved a quarterly cash dividend of $ 0.20 per common share, payable on May 20, 2021 to stockholders of record on May 10, 2021.

Cash dividends of $ 0.175 per common share were approved and paid in each quarter of fiscal 2020.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

NOTE K – EMPLOYEE BENEFIT PLANS

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The grant date fair value of these equity awards was $ 70.60 per unit.

Compensation expense related to this grant was $ 3.2 million in the three months ended December 31, 2020, based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

Stock-based compensation expense related to the Company’s performance-based and time-based restricted stock units was $ 21.2 million during the three months ended December 31, 2020 compared to $ 15.9 million during the three months ended December 31, 2019.

Compensation expense related to this grant was $ 3.0 million and $ 6.2 million in the three and six months ended March 31, 2021, respectively, based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

In March 2021, the Company granted approximately 850,000 time-based RSUs to 1,030 recipients, including executive officers, other key employees and non-management directors.

The weighted average grant date fair value of these equity awards was $ 83.11 per unit, and they vest annually in equal installments over periods of three to five years.

Compensation expense related to this grant was $ 5.5 million in both the three and six months ended March 31, 2021, of which $ 4.8 million related to expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based restricted stock units was $ 24.0 million and $ 45.2 million during the three and six months ended March 31, 2021, respectively, compared to $ 20.3 million and $ 36.2 million during the three and six months ended March 31, 2020.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE L – COMMITMENTS AND CONTINGENCIES

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The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.

Changes in the Company’s warranty liability during the three months ended December 31, 2020 and 2019 were as follows:

Changes in the Company’s warranty liability during the three and six months ended March 31, 2021 and 2020 were as follows:

Three Months Ended

March 31, Six Months Ended

2021 2020 2021 2020

(In millions)

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The Company has established reserves for these contingencies based on the estimated costs of pending claims and the estimated costs of anticipated future claims related to previously closed homes.

The estimated liabilities for these contingencies were $ 491.8 million and $ 473.8 million at December 31, 2020 and September 30, 2020, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 99 % of these reserves related to construction defect matters at both December 31, 2020 and September 30, 2020.

Expenses related to the Company’s legal contingencies were $ 17.4 million and $ 16.6 million in the three months ended December 31, 2020 and 2019, respectively.

Changes in the Company’s legal claims reserves during the three months ended December 31, 2020 and 2019 were as follows:

Three Months Ended

The estimated liabilities for these contingencies were $ 524.4 million and $ 473.8 million at March 31, 2021 and September 30, 2020, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 99 % of these reserves related to construction defect matters at both March 31, 2021 and September 30, 2020.

Expenses related to the Company’s legal contingencies were $ 37.3 million and $ 26.6 million in the six months ended March 31, 2021 and 2020, respectively.

Changes in the Company’s legal claims reserves during the six months ended March 31, 2021 and 2020 were as follows:

Six Months Ended

(In millions)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

The Company estimates and records receivables under its applicable insurance policies related to its estimated contingencies for known claims and anticipated future construction defect claims on previously closed homes and other legal claims and lawsuits incurred in the ordinary course of business when recovery is probable.

However, because the self-insured retentions under these policies are significant, the Company anticipates it will largely be self-insured.

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 82.2 million, $ 81.2 million and $ 76.9 million at December 31, 2020, September 30, 2020 and December 31, 2019, respectively, and are included in other assets in the consolidated balance sheets.

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 90.5 million, $ 81.2 million and $ 76.6 million at March 31, 2021, September 30, 2020 and March 31, 2020, respectively, and are included in other assets in the consolidated balance sheets.

Additionally, the Company may have the ability to recover a portion of its losses from its subcontractors and their insurance carriers when the Company has been named as an additional insured on their insurance policies.

6 unchanged sentences

Land purchase contract deposits and capitalized pre-acquisition costs are expensed to inventory and land option charges when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means.

At December 31, 2020, the Company’s homebuilding segment had total deposits of $ 776.0 million, consisting of cash deposits of $ 710.3 million and promissory notes and surety bonds of $ 65.7 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 11.9 billion.

At March 31, 2021, the Company’s homebuilding segment had total deposits of $ 873.9 million, consisting of cash deposits of $ 798.6 million and promissory notes and surety bonds of $ 75.3 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 13.5 billion.

The majority of land and lots under contract are currently expected to be purchased within three years.

Of these amounts, $ 139.6 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $ 1.5 billion.

A limited number of the homebuilding land and lot purchase contracts at December 31, 2020, representing $ 73.5 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

A limited number of the homebuilding land and lot purchase contracts at March 31, 2021, representing $ 80.5 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

Of the $ 80.5 million remaining purchase price subject to specific performance provisions, $ 41.5 million related to contracts between the homebuilding segment and Forestar.

During the three months ended December 31, 2020 and 2019, Forestar reimbursed the homebuilding segment $ 16.1 million and $ 10.7 million, respectively, for previously paid earnest money and $ 20.9 million and $ 5.2 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2021, Forestar reimbursed the homebuilding segment $ 8.0 million and $ 24.2 million, respectively, for previously paid earnest money and $ 7.3 million and $ 28.2 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2020, Forestar reimbursed the homebuilding segment $ 5.5 million and $ 16.2 million, respectively, for previously paid earnest money and $ 8.2 million and $ 13.3 million, respectively, for pre-acquisition and other due diligence costs.

Other Commitments

At December 31, 2020, the Company had outstanding surety bonds of $ 1.9 billion and letters of credit of $ 192.1 million to secure performance under various contracts.

At March 31, 2021, the Company had outstanding surety bonds of $ 2.1 billion and letters of credit of $ 189.6 million to secure performance under various contracts.

Of the total letters of credit, $ 143.6 million were issued under the homebuilding revolving credit facility and $ 46.0 million were issued under Forestar’s revolving credit facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE M – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

The Company’s other assets at December 31, 2020 and September 30, 2020 were as follows:

The Company’s other assets at March 31, 2021 and September 30, 2020 were as follows:

2021 September 30,

4 unchanged sentences

Prepaid assets 51.7 46.0

Forward sales of mortgage-backed securities 87.8 —

Interest rate lock commitments 26.8 31.3

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$ 1,418.5 $ 1,113.7

The Company’s accrued expenses and other liabilities at December 31, 2020 and September 30, 2020 were as follows:

The Company’s accrued expenses and other liabilities at March 31, 2021 and September 30, 2020 were as follows:

2021 September 30,

3 unchanged sentences

Warranty liability 340.7 310.2

Mortgage hedging instruments and loan commitments 41.3 16.5

Mortgage hedging instruments and commitments 49.2 16.5

Margin call liabilities 72.1 —

Accrued interest 36.1 35.3

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

March 31, 2021

NOTE N – FAIR VALUE MEASUREMENTS

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and September 30, 2020.

Changes in the fair value of the Level 3 assets during the three months ended December 31, 2020 and 2019 were not material.

Fair Value at December 31, 2020

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and September 30, 2020.

Changes in the fair value of the Level 3 assets during the six months ended March 31, 2021 and 2020 were not material.

Fair Value at March 31, 2021

Balance Sheet Location Level 1 Level 2 Level 3 Total

4 unchanged sentences

Derivatives not designated as hedging instruments (3):

Interest rate lock commitments Other assets — 26.4 — 26.4

Forward sales of mortgage-backed securities Other liabilities — ( 38.5 ) — ( 38.5 )

Interest rate lock commitments (4) Other assets/other liabilities — ( 17.3 ) — ( 17.3 )

Forward sales of mortgage-backed securities Other assets — 87.8 — 87.8

Fair Value at September 30, 2020

10 unchanged sentences

Interest income earned on mortgage loans held for sale is based on contractual interest rates and included in other income.

Mortgage loans held for sale valued using Level 3 inputs at December 31, 2020 and September 30, 2020 include $ 17.9 million and $ 15.1 million, respectively, of loans for which the Company elected the fair value option upon origination and did not sell into the secondary market.

Mortgage loans held for sale valued using Level 3 inputs at March 31, 2021 and September 30, 2020 included $ 18.5 million and $ 15.1 million, respectively, of loans for which the Company elected the fair value option upon origination and did not sell into the secondary market.

The fair value of these mortgage loans held for sale is generally calculated considering pricing in the secondary market and adjusted for the value of the underlying collateral, including interest rate risk, liquidity risk and prepayment risk.

1 unchanged sentence

(2) Although the majority of the Company’s mortgage loans are sold on a servicing-released basis, when the servicing rights are retained, the Company records them at fair value using third-party valuations.

The key assumptions used in the valuation, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 11 %, 11 % and 5 %, respectively, at December 31, 2020 and 13 %, 11 % and 5 %, respectively, at September 30, 2020.

The key assumptions used in the valuation, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 10 %, 11 % and 6 %, respectively, at March 31, 2021 and 13 %, 11 % and 5 %, respectively, at September 30, 2020.

(3) Fair value measurements of these derivatives represent changes in fair value, as calculated by reference to quoted prices for similar assets and are reflected in the balance sheet as other assets or accrued expenses and other liabilities.

Changes in the fair value of these derivatives are included in revenues in the consolidated statements of operations.

The net fair value change for the three months ended December 31, 2020 and 2019 recognized in revenues in the consolidated statements of operations was not significant.

The net fair value change for the three and six months ended March 31, 2021 and 2020 recognized in revenues in the consolidated statements of operations was not significant.

(4) The fair value of interest rate lock commitments (IRLCs) at March 31, 2021 reflects $ 26.8 million of servicing release premiums in other assets and a change in fair value of $ 44.1 million in other liabilities.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)

December 31, 2020

The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at December 31, 2020 and September 30, 2020:

March 31, 2021

The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at March 31, 2021 and September 30, 2020:

Fair Value at

December 31, 2020 Fair Value at

March 31, 2021 Fair Value at

September 30, 2020

1 unchanged sentence

(In millions)

Inventory held and used (1) (2) Inventories $ — $ 9.7 $ — $ —

Mortgage loans held for sale (1) (2) Mortgage loans held for sale $ 1.0 $ 1.9 $ 1.5 $ 2.2

2 unchanged sentences

(1) The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as a result of impairment in the respective period and were held at the end of the period.

(2) The fair value of inventory was determined based on recent offers received from outside parties.

(2) These mortgage loans have some degree of impairment affecting their marketability and are valued at the lower of carrying value or fair value.

1 unchanged sentence

otherwise, a cash flow valuation model is used to determine fair value (Level 3).

(4) The fair values of other mortgage loans was determined based on the value of the underlying collateral.

For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at December 31, 2020 and September 30, 2020:

Carrying Value Fair Value at December 31, 2020

(3) The fair values of other mortgage loans were determined based on the value of the underlying collateral.

For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at March 31, 2021 and September 30, 2020:

Carrying Value Fair Value at March 31, 2021

Level 1 Level 2 Level 3 Total

14 unchanged sentences

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-Q

Item 1. Financial Statements