What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-02-02 compared with 2021-07-23 · 185 added, 464 removed, 490 unchanged (57% of the section changed)

15 unchanged sentences

Deferred income taxes, net of valuation allowance of $ 4.1 million and $ 4.2 million

at June 30, 2021 and September 30, 2020, respectively

at December 31, 2021 and September 30, 2021, respectively

Property and equipment, net 410.4 392.9

6 unchanged sentences

Total liabilities 8,986.0 8,799.7

Commitments and contingencies (Note L)

Commitments and contingencies (Note K)

Preferred stock, $ .10 par value, 30,000,000 shares authorized, no shares issued

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 398,162,095 shares issued

and 358,124,810 shares outstanding at June 30, 2021 and 394,741,349 shares issued

and 354,277,601 shares outstanding at December 31, 2021 and 397,190,100 shares issued

and 356,015,843 shares outstanding at September 30, 2021

1 unchanged sentence

Retained earnings 14,705.8 13,644.3

Treasury stock, 38,834,757 shares and 30,741,367 shares at June 30, 2021

Treasury stock, 43,884,494 shares and 41,174,257 shares at December 31, 2021

and September 30, 2021, respectively, at cost

8 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(In millions, except per share data)

3 unchanged sentences

Gain on sale of assets — ( 14.0 )

Loss on extinguishment of debt 18.1 — 18.1 —

Other (income) expense ( 15.5 ) ( 5.3 )

33 unchanged sentences

— — — ( 278.2 ) — ( 278.2 )

Distributions to noncontrolling interests — — — — ( 0.1 ) ( 0.1 )

Change of ownership interest in Forestar — — — — 1.8 1.8

1 unchanged sentence

$ 4.0 $ 3,282.7 $ 14,705.8 $ ( 2,314.8 ) $ 335.7 $ 16,013.4

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

Net income — — 1,115.5 — 1.0 1,116.5

Exercise of stock options ( 152,119 shares)

— 1.4 — — — 1.4

Stock issued under employee benefit plans ( 110,946 shares)

— 8.5 — — — 8.5

Cash paid for shares withheld for taxes and other — 4.4 — — — 4.4

Stock-based compensation expense — 22.6 — — — 22.6

Cash dividends declared ($ 0.20 per share)

— — ( 72.1 ) — — ( 72.1 )

Repurchases of common stock ( 2,617,766 shares)

— — — ( 241.2 ) — ( 241.2 )

Change of ownership interest in Forestar — 0.7 — — 8.2 8.9

Balances at June 30, 2021 ( 358,124,810 shares)

$ 4.0 $ 3,246.0 $ 12,376.9 $ ( 1,824.0 ) $ 322.1 $ 14,125.0

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Continued)

Stock Additional

10 unchanged sentences

Stock issued under employee benefit plans ( 604,947 shares)

0.1 — — — — 0.1

Cash paid for shares withheld for taxes — ( 26.3 ) — — — ( 26.3 )

8 unchanged sentences

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

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

Net income — — 630.7 — 2.2 632.9

Exercise of stock options ( 93,491 shares)

— 2.1 — — — 2.1

Stock issued under employee benefit plans ( 1,907 shares)

Cash paid for shares withheld for taxes — ( 0.1 ) — — — ( 0.1 )

Stock-based compensation expense — 21.3 — — — 21.3

Cash dividends declared ($ 0.175 per share)

— — ( 63.6 ) — — ( 63.6 )

Distributions to noncontrolling interests — — — — ( 0.3 ) ( 0.3 )

Changes of ownership interest in Forestar — ( 0.4 ) — — 0.4 —

Balances at June 30, 2020 ( 363,633,208 shares)

$ 3.9 $ 3,214.2 $ 8,992.5 $ ( 1,162.6 ) $ 279.1 $ 11,327.1

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended June 30,

Three Months Ended December 31,

(In millions)

1 unchanged sentence

Net income $ 1,145.8 $ 795.2

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization 19.4 22.9

Amortization of discounts and fees 6.9 7.8

Stock-based compensation expense 23.7 21.7

Equity in earnings of unconsolidated entities ( 1.0 ) ( 0.6 )

Deferred income taxes 17.7 2.9

1 unchanged sentence

Gain on sale of assets — ( 14.0 )

Loss on extinguishment of debt 18.1 —

Changes in operating assets and liabilities:

5 unchanged sentences

Increase in other assets ( 221.8 ) ( 125.8 )

Net increase in mortgage loans held for sale ( 115.1 ) ( 430.7 )

Decrease in mortgage loans held for sale 194.0 90.1

Increase in accounts payable, accrued expenses and other liabilities 306.2 254.6

Net cash (used in) provided by operating activities ( 34.5 ) 588.9

Net cash used in operating activities ( 174.1 ) ( 252.1 )

INVESTING ACTIVITIES

2 unchanged sentences

Expenditures related to rental properties — ( 86.2 )

Return of investment in unconsolidated entities 2.2 2.4

Net principal increase of other mortgage loans and real estate owned ( 2.4 ) ( 3.7 )

Payments related to business acquisitions — ( 23.0 )

Other investing activities 4.4 2.3

Net cash used in investing activities ( 26.5 ) ( 91.4 )

2 unchanged sentences

Repayment of notes payable ( 0.6 ) ( 400.1 )

(Payments) advances on mortgage repurchase facility, net ( 39.0 ) 284.0

Payments on mortgage repurchase facility, net ( 234.6 ) ( 163.5 )

Proceeds from stock associated with certain employee benefit plans 17.2 0.9

3 unchanged sentences

( 303.8 ) ( 53.8 )

Distributions to noncontrolling interests, net

( 0.1 ) ( 0.7 )

Net proceeds from issuance of Forestar common stock 0.1 —

Other financing activities

( 2.3 ) ( 4.0 )

Net cash (used in) provided by financing activities ( 829.6 ) 370.2

Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,071.0 ) 858.7

Net cash used in financing activities ( 572.0 ) ( 221.7 )

Net decrease in cash, cash equivalents and restricted cash ( 772.6 ) ( 565.2 )

Cash, cash equivalents and restricted cash at beginning of period 3,237.2 3,040.1

Cash, cash equivalents and restricted cash at end of period $ 2,464.6 $ 2,474.9

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine Months Ended June 30,

(In millions)

SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:

1 unchanged sentence

Stock issued under employee incentive plans $ 66.2 $ 44.7

Accrual for holdback payments related to acquisitions $ 1.2 $ 1.9

Repurchase of common stock not settled $ — $ 16.0

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2021

December 31, 2021

NOTE A – BASIS OF PRESENTATION

2 unchanged sentences

Noncontrolling interests represent the proportionate equity interests in consolidated entities that are not 100% owned by the Company.

The Company owns a 64 % controlling interest in Forestar Group Inc.

As of December 31, 2021, the Company owns a 63 % controlling interest in Forestar Group Inc.

(Forestar) and therefore is required to consolidate 100% of Forestar within its consolidated financial statements, and the 37 % interest the Company does not own is accounted for as noncontrolling interests.

5 unchanged sentences

Reclassifications

During the third quarter of fiscal 2021, the Company changed the presentation of its single and multi-family rental operations in its consolidated financial statements.

Bulk sales of rental properties are now presented as revenues and cost of sales, rental assets previously recorded as property and equipment have been reclassified to inventory, and related cash flows for the single and multi-family rental operations are now included in operating activities.

Prior to the third quarter of fiscal 2021, bulk sales of rental properties were presented on a net basis as a gain on sale of assets, and the majority of the cash flow activities were included in investing activities.

This change in presentation was implemented as a result of the Company’s change in strategic focus during the third quarter of fiscal 2021, which included increased levels of activity in the current quarter and plans for future investment in the Company’s single and multi-family rental operations.

This presentation was effected on a prospective basis beginning in the third quarter of fiscal 2021.

During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment and realigned the aggregation of its homebuilding operating segments into six new reportable segments to better allocate its homebuilding operating segments across geographic reporting regions.

The prior year presentation of the Company’s segment information in Note B and in Management’s Discussion and Analysis of Financial Condition and Results of Operations has been conformed to the current presentation for all periods presented.

Use of Estimates

3 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

therefore, the operating results for the three and nine months ended June 30, 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 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.

The Company also acquired a sales order backlog of approximately 125 homes.

AND SUBSIDIARIES

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

June 30, 2021

therefore, the operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022 or subsequent periods.

Pending Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU 2019-12 related to simplifying the accounting for income taxes.

The guidance is effective for the Company beginning October 1, 2021, although early adoption is permitted.

The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S.

In March 2020, the Financial Accounting Standards Board (FASB) issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued.

4 unchanged sentences

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

June 30, 2021

December 31, 2021

In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination.

ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date.

The guidance is effective for the Company beginning October 1, 2023 and interim periods therein, with early adoption permitted.

The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

AND SUBSIDIARIES

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

December 31, 2021

NOTE B – SEGMENT INFORMATION

The Company is a national homebuilder that is primarily engaged in the acquisition and development of land and the construction and sale of residential homes, with operations in 102 markets across 32 states.

The Company’s operating segments are its 55 homebuilding divisions, its majority-owned Forestar residential lot development operations, its financial services operations and its other business activities.

The Company’s reporting segments are its homebuilding reporting segments, its Forestar lot development segment and its financial services segment.

The homebuilding operating segments are aggregated into the following six reporting segments:

East, Midwest, Southeast, South Central, Southwest and West.

These reporting segments have homebuilding operations located in the following states:

Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina and Virginia

Colorado, Illinois, Indiana, Iowa, Kentucky, Minnesota and Ohio

Alabama, Florida, Georgia, Mississippi and Tennessee

The Company’s operating segments are its 77 homebuilding divisions, its majority-owned Forestar residential lot development operations, its financial services operations, its rental operations and its other business activities.

The Company’s reporting segments are its homebuilding reporting segments, its Forestar lot development segment, its financial services segment and its rental operations segment.

During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment to reflect the method by which the chief operating decision makers manage the business, evaluate internal results and allocate financial resources.

Additionally, during the fourth quarter of fiscal 2021, the Company realigned the aggregation of its homebuilding operating segments into six new reportable segments to better allocate its homebuilding operating segments across geographic reporting regions.

Segment information for the three months ended December 31, 2020 has been reclassified to conform to the current presentation.

Based on the aggregation of the homebuilding operating segments, the Company’s six reporting segments and the states in which it has homebuilding operations are as follows:

Colorado, Oregon, Utah and Washington

Arizona, California, Hawaii, Nevada and New Mexico

South Central:

Louisiana, Oklahoma and Texas

Arizona and New Mexico

California, Hawaii, Nevada, Oregon, Utah and Washington

Oklahoma and Texas

Alabama, Florida, Louisiana and Mississippi

Georgia, North Carolina, South Carolina and Tennessee

Delaware, Illinois, Indiana, Iowa, Kentucky, Maryland, Minnesota, Nebraska,

New Jersey, Ohio, Pennsylvania, Virginia and West Virginia

The Company’s homebuilding divisions design, build and sell single-family detached homes on lots they develop and on fully developed lots purchased ready for home construction.

1 unchanged sentence

Most of the revenue generated by the Company’s homebuilding operations is from the sale of completed homes and to a lesser extent from the sale of land and lots.

During fiscal 2020, the Company began constructing and leasing homes as income-producing single-family rental communities.

After a rental community is constructed and achieves a stabilized level of leased occupancy, the Company generally markets the community for a bulk sale of homes.

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

During the third quarter of fiscal 2021, the Company sold a single-family rental community for $ 23.1 million in revenues and $ 11.4 million of gross profit.

In the first quarter of fiscal 2021, the Company sold a single-family rental community for $ 31.8 million and recorded a gain on sale of $ 14.0 million.

At June 30, 2021, the Company’s homebuilding inventory included $ 303.1 million of assets related to 44 single-family rental communities compared to $ 87.2 million of assets included in property and equipment related to 10 single-family rental communities at September 30, 2020.

At June 30, 2021, the Company’s single-family rental properties included 2,340 homes and finished lots, of which 680 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 55 markets across 23 states.

2 unchanged sentences

Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance.

Financial Services

The Company’s financial services segment provides mortgage financing and title agency services to homebuyers in many of the Company’s homebuilding markets.

The segment generates the substantial majority of its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

The Company sells substantially all of the mortgages it originates and the majority of the related servicing rights to third-party purchasers.

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

The Company conducts insurance-related operations, constructs, owns and sells income-producing multi-family rental properties, owns non-residential real estate including ranch land and improvements and owns and operates oil and gas related assets.

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

The Company sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers.

AND SUBSIDIARIES

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

June 30, 2021

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

At June 30, 2021, the Company had eleven multi-family rental projects under active construction and four projects that were substantially complete and in the lease-up phase.

These 15 projects represent 4,540 multi-family units, including 3,230 units under active construction and 1,310 completed units.

At June 30, 2021, the consolidated balance sheet included $ 458.3 million of assets related to multi-family rental operations, which included $ 436.3 million of rental property inventory.

At September 30, 2020, the consolidated balance sheet included $ 246.2 million of assets related to multi-family rental operations, which included $ 232.1 million of property and equipment.

December 31, 2021

The Company’s rental segment consists of multi-family and single-family rental operations.

The multi-family rental operations develop, construct, lease and sell residential rental properties.

The single-family rental operations primarily construct and lease single-family homes and then market the community for a bulk sale of rental homes.

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

The Company conducts insurance-related operations, owns non-residential real estate including ranch land and improvements and owns and operates energy-related assets.

The results of these operations are immaterial for separate reporting and therefore are grouped together and presented as other within the Eliminations and Other column in the tables that follow.

AND SUBSIDIARIES

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

December 31, 2021

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, 2021.

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

June 30, 2021

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

December 31, 2021

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

(In millions)

27 unchanged sentences

(1) Amounts 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.

(2) Amounts include the balances of the Company’s other businesses, the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

AND SUBSIDIARIES

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

June 30, 2021

December 31, 2021

September 30, 2021

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

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

(In millions)

7 unchanged sentences

Land held for sale 25.4 — — — — 25.4

Rental properties — — — 840.9 ( 19.1 ) 821.8

13,907.8 1,905.2 — 840.9 ( 174.8 ) 16,479.1

17 unchanged sentences

(1) Amounts 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.

AND SUBSIDIARIES

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

June 30, 2021

Three Months Ended June 30, 2021

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

(In millions)

$ 7,040.1 $ — $ — $ — $ — $ 7,040.1

Land/lot sales and other (4) 30.2 312.9 — 15.9 ( 303.2 ) 55.8

Financial services

— — 188.7 — — 188.7

7,070.3 312.9 188.7 15.9 ( 303.2 ) 7,284.6

Cost of sales

Home sales (3) 5,219.2 — — — ( 40.0 ) 5,179.2

Land/lot sales and other (4) 14.4 256.4 — — ( 243.0 ) 27.8

Inventory and land option charges

4.9 0.7 — — — 5.6

5,238.5 257.1 — — ( 283.0 ) 5,212.6

Selling, general and administrative expense

502.0 16.9 127.0 9.6 0.2 655.7

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 7.1 ) ( 0.3 ) ( 8.6 ) ( 1.4 ) — ( 17.4 )

Income before income taxes $ 1,336.9 $ 21.1 $ 70.3 $ 7.7 $ ( 20.4 ) $ 1,415.6

______________

(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 recognition of 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.

(4) Homebuilding segment other revenues and other cost of sales include the sale of a single-family rental community for $ 23.1 million in revenues and $ 11.4 million of gross profit.

AND SUBSIDIARIES

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

June 30, 2021

Nine Months Ended June 30, 2021

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

December 31, 2021

Three Months Ended December 31, 2021

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

(In millions)

1 unchanged sentence

Land/lot sales and other 23.0 407.6 — — ( 374.4 ) 56.2

Rental property sales — — — 156.5 — 156.5

Financial services

4 unchanged sentences

Land/lot sales and other 17.1 333.6 — — ( 317.7 ) 33.0

Rental property sales — — — 72.5 ( 0.8 ) 71.7

Inventory and land option charges

3 unchanged sentences

497.7 21.5 125.3 18.5 2.9 665.9

Gain on sale of assets (5) ( 13.1 ) — — ( 0.9 ) — ( 14.0 )

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 6.2 ) ( 1.6 ) ( 8.1 ) ( 4.9 ) 5.3 ( 15.5 )

3 unchanged sentences

$ 15.4 $ 0.5 $ 0.4 $ 0.1 $ 3.0 $ 19.4

Cash provided by (used in) operating activities

$ 276.1 $ ( 340.6 ) $ 96.2 $ ( 58.2 ) $ ( 8.0 ) $ ( 34.5 )

______________

(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 recognition of profit on lots sold from Forestar to the homebuilding segment.

(4) Homebuilding segment other revenues and other cost of sales include the third quarter sale of a single-family rental community for $ 23.1 million in revenues and $ 11.4 million of gross profit.

(5) In December 2020, the Company sold a single-family rental community for $ 31.8 million, which resulted in a gain on sale of $ 13.1 million in the homebuilding segment and $ 0.9 million in the other businesses.

AND SUBSIDIARIES

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

June 30, 2021

Three Months Ended June 30, 2020

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

(In millions)

$ 5,207.6 $ — $ — $ — $ — $ 5,207.6

Land/lot sales and other

14.5 177.9 — 8.9 ( 175.5 ) 25.8

Financial services

— — 156.6 — — 156.6

5,222.1 177.9 156.6 8.9 ( 175.5 ) 5,390.0

Cost of sales

Home sales (3) 4,082.3 — — — ( 16.8 ) 4,065.5

Land/lot sales and other

10.2 157.0 — — ( 153.0 ) 14.2

Inventory and land option charges

4.9 0.1 — — — 5.0

4,097.4 157.1 — — ( 169.8 ) 4,084.7

Selling, general and administrative expense

415.1 11.2 93.9 7.1 0.2 527.5

Other (income) expense ( 0.2 ) ( 0.7 ) ( 6.1 ) 2.4 — ( 4.6 )

Income (loss) before income taxes $ 709.8 $ 10.3 $ 68.8 $ ( 0.6 ) $ ( 5.9 ) $ 782.4

Cash (used in) provided by operating activities $ ( 114.7 ) $ 5.8 $ 247.5 $ ( 255.9 ) $ ( 56.8 ) $ ( 174.1 )

______________

(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 recognition of profit on lots sold from Forestar to the homebuilding segment.

(2) Amounts include the results of the Company’s other businesses and the elimination of intercompany transactions.

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

1 unchanged sentence

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

June 30, 2021

Nine Months Ended June 30, 2020

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

December 31, 2021

Three Months Ended December 31, 2020

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

(In millions)

1 unchanged sentence

Land/lot sales and other 17.9 307.1 — — ( 277.5 ) 47.5

49.7 584.3 — 27.2 ( 548.6 ) 112.6

Rental property sales — — — 31.8 ( 31.8 ) —

Financial services

4 unchanged sentences

Land/lot sales and other 13.7 262.5 — — ( 249.4 ) 26.8

34.9 509.8 — — ( 477.6 ) 67.1

Rental property sales — — — 17.8 ( 17.8 ) —

Inventory and land option charges

9 unchanged sentences

$ 16.4 $ 0.7 $ 0.4 $ 2.7 $ 2.7 $ 22.9

Cash provided by (used in) operating activities

$ 1,157.0 $ ( 205.7 ) $ ( 347.7 ) $ 2.1 $ ( 16.8 ) $ 588.9

Cash (used in) provided by operating activities $ ( 269.6 ) $ ( 158.7 ) $ 173.1 $ ( 58.9 ) $ 62.0 $ ( 252.1 )

______________

(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 recognition of profit on lots sold from Forestar to the homebuilding segment.

(2) Amounts include the results of the Company’s other businesses, reconciling amounts between segment and consolidated balances and the elimination of intercompany transactions.

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

(4) In the nine months ended June 30, 2020, the Company sold two multi-family rental properties for a total of $ 128.5 million, which resulted in gains on sale totaling $ 59.4 million in the other businesses.

AND SUBSIDIARIES

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

June 30, 2021

December 31, 2021

Homebuilding Inventories by Reporting Segment (1)

1 unchanged sentence

(In millions)

East (2) $ 1,605.6 $ 1,328.3

Midwest (2) 1,225.9 958.5

Southeast (2) 3,510.6 2,919.9

South Central (2) 3,824.6 2,879.9

Northwest $ 1,450.8 $ 1,307.5

Southwest 2,743.3 2,445.6

West (2) 2,536.6 2,009.1

South Central 3,772.2 3,479.3

Southeast 3,444.9 3,178.6

East 2,118.3 1,919.6

North 1,558.4 1,368.9

Corporate and unallocated (2) 209.0 208.3

2 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) Single-family rental properties included in homebuilding inventories at June 30, 2021 totaled $ 303.1 million, of which $ 31.7 million were in the East region, $ 20.2 million were in the Midwest region, $ 156.3 million were in the Southeast region, $ 33.5 million were in the South Central region, $ 25.5 million were in the Southwest region and $ 35.9 million were in the West region.

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

Homebuilding Results by Reporting Segment Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(In millions)

East $ 1,032.7 $ 736.3 $ 2,703.4 $ 1,836.5

Midwest 514.6 373.3 1,396.1 964.6

Southeast 2,300.1 1,629.1 6,133.4 4,096.4

South Central 1,709.8 1,376.4 4,688.8 3,401.5

Northwest $ 569.0 $ 548.0

Southwest 911.6 838.6

West 1,222.1 890.9 3,288.2 2,558.1

$ 7,070.3 $ 5,222.1 $ 18,976.6 $ 13,483.9

Inventory and Land Option Charges

East $ 1.4 $ 0.2 $ 2.7 $ ( 0.1 )

Midwest 0.5 0.4 0.7 1.9

Southeast 1.0 2.0 8.8 6.3

South Central 1,694.3 1,363.5

Southwest — 0.1 0.4 0.1

West 0.5 0.3 1.3 2.8

Southeast 1,810.9 1,465.0

East 1,074.9 1,007.7

North 618.7 493.8

$ 6,679.4 $ 5,716.6

Income before Income Taxes

East $ 190.3 $ 106.9 $ 468.8 $ 240.1

Midwest 67.2 34.1 177.3 76.4

Southeast 465.3 233.5 1,147.8 567.4

South Central 323.1 201.8 854.6 490.7

Northwest $ 111.8 $ 86.8

Southwest 159.3 115.2

West 244.3 103.8 550.9 267.3

South Central 354.3 240.0

Southeast 415.4 247.2

East 202.3 170.7

North 89.9 62.7

$ 1,333.0 $ 922.6

1 unchanged sentence

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

June 30, 2021

December 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 June 30, 2021, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended June 30, 2021.

During the nine months ended June 30, 2021, impairment charges totaled $ 5.6 million.

There were no impairment charges recorded in the prior year quarter and $ 1.7 million of impairment charges recorded in the nine months ended June 30, 2020.

During the three and nine months ended June 30, 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 5.6 million and $ 12.0 million, respectively, compared to $ 5.0 million and $ 16.1 million in the same periods of fiscal 2020.

As of December 31, 2021, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended December 31, 2021, compared to $ 5.6 million of impairment charges recorded in the prior year period.

During the three months ended December 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 $ 4.8 million, compared to $ 2.7 million in the same period of fiscal 2021.

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)

June 30, 2021

December 31, 2021

NOTE D – NOTES PAYABLE

4 unchanged sentences

Revolving credit facility $ — $ —

364-day revolving credit facility (1)

4.375 % senior notes due 2022 (1)

10 unchanged sentences

5.0 % senior notes due 2028 (3)

5.0 % senior notes due 2028 (5)

Other secured notes 12.5 12.5

3 unchanged sentences

____________________________

(1) The Company’s $ 375 million 364-day senior unsecured homebuilding revolving credit facility was not renewed upon its maturity on May 27, 2021.

(2) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 12.3 million and $ 10.7 million at June 30, 2021 and September 30, 2020, respectively.

(3) Homebuilding other secured notes excludes $ 1.4 million and $ 4.8 million of earnest money notes payable due to Forestar at June 30, 2021 and September 30, 2020, respectively.

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 15.4 million and $ 16.5 million at December 31, 2021 and September 30, 2021, respectively.

(2) Homebuilding other secured notes excludes $ 0.6 million and $ 0.7 million of earnest money notes payable to Forestar at December 31, 2021 and September 30, 2021, respectively.

These intercompany notes are eliminated in consolidation.

(4) Forestar’s 8.0 % senior notes due April 15, 2024 were redeemed in May 2021.

(5) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 8.4 million and $ 8.9 million at June 30, 2021 and September 30, 2020, respectively.

(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 7.6 million and $ 8.0 million at December 31, 2021 and September 30, 2021, respectively.

(4) The fair value of notes payable at December 31, 2021 totaled $ 5.3 billion, of which $ 3.9 billion was measured using Level 2 inputs and $ 1.4 billion was measured using Level 3 inputs.

The fair value of notes payable at September 30, 2021 totaled $ 5.5 billion, of which $ 3.9 billion was measured using Level 2 inputs and $ 1.6 billion was measured using Level 3 inputs.

AND SUBSIDIARIES

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

June 30, 2021

December 31, 2021

Homebuilding:

In April 2021, the Company’s senior unsecured homebuilding revolving credit facility was amended to increase its capacity 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.

The Company has a $ 2.19 billion senior unsecured homebuilding revolving credit facility 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.

The facility also provides for the issuance of letters of credit with a sublimit equal to 100 % of the revolving credit commitment.

1 unchanged sentence

The interest rate on borrowings under the 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 was extended to April 20, 2026.

At June 30, 2021, there were no borrowings outstanding and $ 159.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 2.03 billion.

The maturity date of the facility is April 20, 2026.

At December 31, 2021, there were no borrowings outstanding and $ 187.2 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 2.0 billion.

The Company’s homebuilding revolving credit facility imposes 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.

2 unchanged sentences

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

At June 30, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility 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.

In October 2020, the Company issued $ 500 million principal amount of 1.4 % senior notes due October 15, 2027, with interest payable semi-annually.

The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 1.6 %.

In December 2020, the Company repaid $ 400 million principal amount of its 2.55 % senior notes at maturity.

Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $ 500 million of the Company’s debt securities.

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

Horton has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in July 2021, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

In July 2019, the Board of Directors authorized the repurchase of up to $ 500 million of the Company’s debt securities.

The authorization has no expiration date.

All of the $ 500 million authorization was remaining at June 30, 2021.

In April 2021, Forestar’s senior unsecured revolving credit facility was amended to increase its capacity 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.

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

Forestar has a $ 410 million senior unsecured revolving credit facility 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.

The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $ 100 million and 50 % of the revolving credit commitment.

1 unchanged sentence

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

The maturity date of the facility was extended to April 16, 2025.

Borrowings and repayments under the facility were $ 25 million each during the nine months ended June 30, 2021.

At June 30, 2021, there were no borrowings outstanding and $ 60.2 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 349.8 million.

AND SUBSIDIARIES

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

June 30, 2021

The maturity date of the facility is April 16, 2025.

At December 31, 2021, there were no borrowings outstanding and $ 66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 343.7 million.

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 June 30, 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 %.

The net proceeds from this issuance were primarily used to redeem Forestar’s $ 350 million principal amount of 8.0 % senior notes due 2024 in May 2021.

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

Forestar recognized an $ 18.1 million loss on extinguishment of debt upon redemption of the notes.

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 June 30, 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.

At December 31, 2021, 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, 2021

In April 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 June 30, 2021.

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

Financial Services:

2 unchanged sentences

The total capacity of the facility is $ 1.4 billion;

however, the capacity increases, without requiring additional commitments, to $ 1.6 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.

Through additional commitments, the total capacity of the facility was temporarily increased to $ 1.6 billion effective June 11, 2021 through November 4, 2021.

During this period, the capacity increases, without requiring additional commitments, to $ 1.8 billion for approximately 30 days at the end of the third quarter and for 45 days at fiscal year end.

The maturity date of the facility is February 18, 2022.

As of June 30, 2021, $ 1.5 billion of mortgage loans held for sale with a collateral value of $ 1.5 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 410.2 million, DHI Mortgage had an obligation of $ 1.1 billion outstanding under the mortgage repurchase facility at June 30, 2021 at a 2.1 % annual interest rate.

however, the capacity automatically increases during certain higher volume periods and can be further increased through additional commitments.

The total capacity of the facility at December 31, 2021 was $ 1.633 billion, and its maturity date is February 18, 2022.

DHI Mortgage expects to renew and extend the maturity date of the facility.

As of December 31, 2021, $ 1.7 billion of mortgage loans held for sale with a collateral value of $ 1.7 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 436.5 million, DHI Mortgage had an obligation of $ 1.3 billion outstanding under the mortgage repurchase facility at December 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 June 30, 2021, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

At December 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)

June 30, 2021

December 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 nine 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 nine months ended June 30, 2021 and 2020:

During the first three months of fiscal 2022 and fiscal 2021, 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, 2021 and 2020:

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(In millions)

4 unchanged sentences

__________________

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 4.7 million and $ 13.0 million in the three and nine months ended June 30, 2021, respectively, and $ 4.3 million and $ 14.0 million in the same periods of fiscal 2020.

Also included in interest incurred is Forestar interest of $ 10.3 million and $ 33.3 million in the three and nine months ended June 30, 2021, respectively, and $ 11.4 million and $ 29.8 million in the same periods of fiscal 2020.

AND SUBSIDIARIES

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

June 30, 2021

NOTE F – PROPERTY AND EQUIPMENT

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

2021 September 30,

(In millions)

Buildings and improvements $ 277.0 $ 267.4

Model home furniture 133.9 134.0

Office furniture and equipment 105.6 108.1

Land 32.2 32.3

Single-family rental properties (1)

Single-family rental properties — 68.1

Total single-family rental properties — 87.2

Accumulated depreciation ( 268.4 ) ( 256.2 )

Total homebuilding 280.3 372.8

Other Businesses

Multi-family rental properties (1)

Multi-family rental properties — 173.8

Total multi-family rental properties — 232.1

Oil and gas related assets 75.1 69.7

Office furniture and equipment 16.5 15.6

Land 16.1 19.7

Accumulated depreciation ( 26.6 ) ( 28.2 )

Total other businesses 81.1 308.9

Forestar, net 2.2 1.1

Financial services, net 3.4 3.9

Eliminations — ( 3.0 )

Property and equipment, net $ 367.0 $ 683.7

__________________

(1) Assets related to single-family and multi-family rental properties totaling $ 303.1 million and $ 436.3 million, respectively, are recorded as rental property inventory in the current year period.

Depreciation expense was $ 14.7 million and $ 49.5 million during the three and nine months ended June 30, 2021, respectively, compared to $ 17.1 million and $ 51.6 million in the same periods of fiscal 2020.

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 4.0 million and $ 4.5 million in the three months ended December 31, 2021 and 2020, respectively, and Forestar interest of $ 8.1 million and $ 11.5 million in those periods.

AND SUBSIDIARIES

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

June 30, 2021

NOTE G – MORTGAGE LOANS

December 31, 2021

NOTE F – MORTGAGE LOANS

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

1 unchanged sentence

Servicing rights retained are typically sold within six months of loan origination.

At June 30, 2021, mortgage loans held for sale had an aggregate carrying value of $ 1.64 billion and an aggregate outstanding principal balance of $ 1.60 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 nine months ended June 30, 2021 and 2020, mortgage loans originated totaled $ 11.5 billion and $ 8.4 billion, respectively, and mortgage loans sold totaled $ 11.4 billion and $ 8.0 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 135.4 million and $ 453.0 million during the three and nine months ended June 30, 2021, respectively, compared to $ 116.7 million and $ 263.7 million in the prior year periods.

At December 31, 2021, mortgage loans held for sale of $ 1.83 billion had an aggregate outstanding principal balance of $ 1.79 billion.

At September 30, 2021, mortgage loans held for sale of $ 2.03 billion had an aggregate outstanding principal balance of $ 1.97 billion.

Mortgage loans held for sale at both dates were primarily composed of mortgage loans measured at fair value on a recurring basis using Level 2 inputs.

During the three months ended December 31, 2021 and 2020, mortgage loans originated totaled $ 3.9 billion and $ 3.5 billion, respectively, and mortgage loans sold totaled $ 4.1 billion and $ 3.6 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 134.1 million during the three months ended December 31, 2021 compared to $ 138.9 million in the prior year period.

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

During the nine months ended June 30, 2021, approximately 55 % 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.

During the three months ended December 31, 2021, approximately 61 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 30 % were sold to one other major financial entity.

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

At June 30, 2021 and September 30, 2020, the Company had mortgage-backed securities (MBS) totaling $ 862.4 million 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 $ 1.9 million and $ 5.3 million, respectively, for the fair value of such MBS position.

NOTE H – INCOME TAXES

The Company’s income tax expense for the three and nine months ended June 30, 2021 was $ 299.1 million and $ 784.1 million, respectively, compared to $ 149.5 million and $ 377.6 million in the prior year periods.

The effective tax rate was 21.1 % and 21.6 % for the three and nine months ended June 30, 2021 compared to 19.1 % and 19.6 % 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 three and nine months ended June 30, 2020, the fiscal 2020 retroactive reinstatement of the federal energy efficient homes tax credit reduced the effective tax rate by 3.1 % and 2.8 %, respectively.

For the three and nine months ended June 30, 2021, a change in the estimate of homes qualifying for the fiscal 2020 energy efficient tax credit and the retroactive extension of the energy efficient tax credit reduced the effective tax rate by 1.9 % and 0.9 %, respectively.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 154.4 million at June 30, 2021 compared to $ 152.4 million at September 30, 2020.

The Company has a valuation allowance of $ 7.3 million and $ 7.5 million at June 30, 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.

At December 31, 2021 and September 30, 2021, the Company had mortgage-backed securities (MBS) totaling $ 1.2 billion and $ 834.6 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded an asset of $ 1.3 million and $ 1.1 million, respectively, for the fair value of such MBS position.

The Company is party to IRLCs, which are extended to borrowers who have applied for loan funding and meet defined credit and underwriting criteria.

At December 31, 2021 and September 30, 2021, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 2 inputs, totaled $ 1.8 billion and $ 1.5 billion, respectively.

NOTE G – INCOME TAXES

The Company’s income tax expense for the three months ended December 31, 2021 and 2020 was $ 351.5 million and $ 239.1 million, respectively.

The effective tax rate was 23.5 % for the three months ended December 31, 2021 compared to 23.1 % 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.

The federal energy efficient homes tax credit expires for homes closed after December 31, 2021.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 141.7 million at December 31, 2021 compared to $ 159.5 million at September 30, 2021.

The Company has a valuation allowance of $ 4.1 million and $ 4.2 million at December 31, 2021 and September 30, 2021, 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.

5 unchanged sentences

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

June 30, 2021

NOTE I – EARNINGS PER SHARE

December 31, 2021

NOTE H – EARNINGS PER SHARE

The following table sets forth the numerators and denominators used in the computation of basic and diluted earnings per share.

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(In millions)

9 unchanged sentences

$ 3.17 $ 2.14

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, of which $ 100 million was reserved for sales under its at-the-market equity offering program that became effective in August 2020.

During the nine months ended June 30, 2021, Forestar issued 1.4 million shares of common stock under its at-the-market equity offering program for proceeds of $ 32.6 million, net of commissions and other issuance costs.

At June 30, 2021, $ 361.0 million remained available for issuance under Forestar’s shelf registration statement, of which $ 66.7 million is reserved for sales under its at-the-market equity offering program.

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.

NOTE I – STOCKHOLDERS’ EQUITY

Horton has an automatically effective universal shelf registration statement, filed with the SEC in July 2021, registering debt and equity securities that it may issue from time to time in amounts to be determined.

Forestar has an effective shelf registration statement, filed with the SEC in October 2021, registering $ 750 million of equity securities, of which $ 300 million was reserved for sales under its at-the-market equity offering program that became effective in November 2021.

During the three months ended December 31, 2021, Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

At December 31, 2021, $ 748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $ 298.2 million was reserved for sales under its at-the-market equity offering program.

In April 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.

The Company repurchased 2.6 million shares of its common stock for $ 241.2 million during the current quarter for a total of 8.1 million shares repurchased for $ 661.4 million during the nine months ended June 30, 2021.

At June 30, 2021, there was $ 758.8 million remaining on the repurchase authorization.

During each of the first three 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 May 20, 2021 to stockholders of record on May 10, 2021.

In July 2021, the Board of Directors approved a quarterly cash dividend of $ 0.20 per common share, payable on August 17, 2021 to stockholders of record on August 10, 2021.

During the three months ended December 31, 2021, the Company repurchased 2.7 million shares of its common stock for $ 278.2 million.

At December 31, 2021, there was $ 268.0 million remaining on the repurchase authorization.

During the three months ended December 31, 2021, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, which was paid on December 15, 2021 to stockholders of record on December 6, 2021.

In January 2022, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, payable on February 25, 2022 to stockholders of record on February 17, 2022.

Cash dividends of $ 0.20 per common share were approved and paid in each quarter of fiscal 2021.

1 unchanged sentence

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

June 30, 2021

NOTE K – EMPLOYEE BENEFIT PLANS

December 31, 2021

NOTE J – EMPLOYEE BENEFIT PLANS

Restricted Stock Units (RSUs)

The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors.

Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based).

RSU awards may be based on performance (performance-based) or on service over a requisite time period (time-based).

Performance-based and time-based RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied.

The RSUs have no dividend or voting rights until vested.

In November 2020, the Company granted 360,000 performance-based RSU equity awards to its executive officers.

In October 2021, the Company granted 390,000 performance-based RSU equity awards to its executive officers.

These awards vest at the end of a three -year performance period ending September 30, 2024.

5 unchanged sentences

The grant date fair value of these equity awards was $ 89.95 per unit.

Compensation expense related to this grant was $ 3.1 million and $ 9.4 million in the three and nine months ended June 30, 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.

During the nine months ended June 30, 2021, the Company granted approximately 860,000 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 $ 83.13 per unit, and they vest annually in equal installments over periods of three to five years.

Compensation expense related to these grants was $ 4.0 million and $ 9.5 million in the three and nine months ended June 30, 2021, respectively.

Compensation expense in the nine month period included $ 4.8 million of 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 $ 21.4 million and $ 66.6 million during the three and nine months ended June 30, 2021, respectively, compared to $ 20.4 million and $ 56.6 million during the three and nine months ended June 30, 2020.

Compensation expense related to this grant was $ 4.1 million in the three months ended December 31, 2021 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.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 21.9 million during the three months ended December 31, 2021 compared to $ 21.2 million during the three months ended December 31, 2020.

AND SUBSIDIARIES

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

June 30, 2021

NOTE L – COMMITMENTS AND CONTINGENCIES

December 31, 2021

NOTE K – COMMITMENTS AND CONTINGENCIES

Warranty Claims

1 unchanged sentence

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 and nine months ended June 30, 2021 and 2020 were as follows:

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

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

(In millions)

8 unchanged sentences

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 $ 543.1 million and $ 473.8 million at June 30, 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 June 30, 2021 and September 30, 2020.

Expenses related to the Company’s legal contingencies were $ 46.2 million and $ 41.1 million in the nine months ended June 30, 2021 and 2020, respectively.

Changes in the Company’s legal claims reserves during the nine months ended June 30, 2021 and 2020 were as follows:

Nine Months Ended

The estimated liabilities for these contingencies were $ 585.2 million and $ 577.5 million at December 31, 2021 and September 30, 2021, 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, 2021 and September 30, 2021.

Expenses related to the Company’s legal contingencies were $ 12.9 million and $ 17.4 million in the three months ended December 31, 2021 and 2020, respectively.

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

Three Months Ended

(In millions)

5 unchanged sentences

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

June 30, 2021

December 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 $ 98.1 million, $ 81.2 million and $ 82.4 million at June 30, 2021, September 30, 2020 and June 30, 2020, 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 $ 107.0 million, $ 109.5 million and $ 82.2 million at December 31, 2021, September 30, 2021 and December 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 June 30, 2021, the Company’s homebuilding segment had total deposits of $ 999.8 million, consisting of cash deposits of $ 918.9 million and promissory notes and surety bonds of $ 80.9 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 15.0 billion.

At December 31, 2021, the Company had total deposits of $ 1.3 billion, consisting of cash deposits of $ 1.2 billion and promissory notes and surety bonds of $ 91.9 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 17.1 billion.

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

Of these amounts, $ 141.5 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 June 30, 2021, representing $ 136.9 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 December 31, 2021, representing $ 87.7 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 $ 87.7 million remaining purchase price subject to specific performance provisions, $ 64.8 million related to contracts between the homebuilding segment and Forestar.

During the three and nine months ended June 30, 2021, Forestar reimbursed the homebuilding segment $ 3.5 million and $ 27.7 million, respectively, for previously paid earnest money and $ 14.9 million and $ 43.1 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 nine months ended June 30, 2020, Forestar reimbursed the homebuilding segment $ 7.0 million and $ 23.2 million, respectively, for previously paid earnest money and $ 12.9 million and $ 26.2 million, respectively, for pre-acquisition and other due diligence costs.

During the three months ended December 31, 2021 and 2020, Forestar reimbursed the homebuilding segment $ 2.7 million and $ 16.1 million, respectively, for previously paid earnest money and $ 21.6 million and $ 20.9 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.

Other Commitments

At June 30, 2021, the Company had outstanding surety bonds of $ 2.1 billion and letters of credit of $ 219.5 million to secure performance under various contracts.

At December 31, 2021, the Company had outstanding surety bonds of $ 2.4 billion and letters of credit of $ 253.5 million to secure performance under various contracts.

Of the total letters of credit, $ 187.2 million were issued under the homebuilding revolving credit facility and $ 66.3 million were issued under Forestar’s revolving credit facility.

1 unchanged sentence

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

June 30, 2021

NOTE M – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

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

December 31, 2021

NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

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

2021 September 30,

4 unchanged sentences

Prepaid assets 70.4 51.6

Interest rate lock commitments 22.1 31.3

Margin deposits 20.0 16.2

Contract assets - insurance agency commissions 60.8 58.6

Lease right of use assets 38.1 35.6

Interest rate lock commitments 24.6 17.9

Mortgage servicing rights 8.3 4.1

1 unchanged sentence

$ 1,787.5 $ 1,560.6

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

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

2021 September 30,

3 unchanged sentences

Warranty liability 390.0 376.3

Mortgage hedging instruments and commitments 18.9 16.5

Accrued interest 34.9 35.3

Federal and state income tax liabilities 39.1 42.6

Inventory related accruals 200.5 93.9

Customer deposits 218.2 193.4

Inventory related accruals 274.5 261.2

Federal and state income tax liabilities 430.5 88.2

Accrued property taxes 32.2 51.0

Lease liabilities 39.3 37.0

Accrued interest 37.2 31.5

Other 144.8 102.1

$ 2,580.0 $ 2,210.3

AND SUBSIDIARIES

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

June 30, 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 June 30, 2021 and September 30, 2020.

Changes in the fair value of the Level 3 assets during the nine months ended June 30, 2021 and 2020 were not material.

Fair Value at June 30, 2021

Balance Sheet Location Level 1 Level 2 Level 3 Total

(In millions)

Mortgage loans held for sale (1) Mortgage loans held for sale $ — $ 1,624.7 $ 9.4 $ 1,634.1

Mortgage servicing rights (2) Other assets — 13.9 0.3 14.2

Derivatives not designated as hedging instruments (3):

Interest rate lock commitments Other assets — 22.1 — 22.1

Forward sales of mortgage-backed securities Other liabilities — ( 16.9 ) — ( 16.9 )

Fair Value at September 30, 2020

Balance Sheet Location Level 1 Level 2 Level 3 Total

(In millions)

Debt securities collateralized by residential real estate Other assets $ — $ — $ 3.9 $ 3.9

Mortgage loans held for sale (1) Mortgage loans held for sale — 1,503.2 15.1 1,518.3

Mortgage servicing rights (2) Other assets — — 17.1 17.1

Derivatives not designated as hedging instruments (3):

Interest rate lock commitments Other assets — 31.3 — 31.3

Forward sales of mortgage-backed securities Other liabilities — ( 16.2 ) — ( 16.2 )

___________________

(1) The Company typically elects the fair value option upon origination for mortgage loans held for sale.

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 June 30, 2021 and September 30, 2020 included $ 9.4 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.

The Company plans to sell these loans as market conditions permit.

(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 Level 3 valuations unless specific investor bids are available during the subsequent sale process resulting in a Level 2 valuation.

The key assumptions used in third-party Level 3 valuations, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 10 %, 11 % and 6 %, respectively, at June 30, 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 and nine months ended June 30, 2021 and 2020 recognized in revenues in the consolidated statements of operations was not significant.

AND SUBSIDIARIES

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

June 30, 2021

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

Fair Value at

June 30, 2021 Fair Value at

September 30, 2020

Balance Sheet Location Level 2 Level 3 Level 2 Level 3

(In millions)

Mortgage loans held for sale (1) (2) Mortgage loans held for sale $ 0.6 $ 0.6 $ 1.5 $ 2.2

Other mortgage loans (1) (3) Other assets 2.7 1.3 0.6 2.0

Real estate owned (1) (3) Other assets — 0.2 — —

___________________

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

When available, quoted prices in the secondary market are used to determine fair value (Level 2);

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

(3) The fair values of other mortgage loans and real estate owned 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 June 30, 2021 and September 30, 2020:

Carrying Value Fair Value at June 30, 2021

Level 1 Level 2 Level 3 Total

(In millions)

Cash and cash equivalents (1) $ 1,942.7 $ 1,942.7 $ — $ — $ 1,942.7

Restricted cash (1) 26.4 26.4 — — 26.4

Notes payable (2) (3) 4,416.3 — 3,373.9 1,188.9 4,562.8

Carrying Value Fair Value at September 30, 2020

Level 1 Level 2 Level 3 Total

(In millions)

Cash and cash equivalents (1) $ 3,018.5 $ 3,018.5 $ — $ — $ 3,018.5

Restricted cash (1) 21.6 21.6 — — 21.6

Notes payable (2) (3) 4,283.3 — 3,285.5 1,203.7 4,489.2

___________________

(1) The fair values of cash, cash equivalents and restricted cash approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.

(2) The fair value of the senior notes is determined based on quoted prices, which is classified as Level 2 within the fair value hierarchy.

(3) The fair values of other secured notes and borrowings on the revolving credit facilities and the mortgage repurchase facility approximate carrying value due to their short-term nature or floating interest rate terms, as applicable, and are classified as Level 3 within the fair value hierarchy.

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