What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-02 compared with 2021-07-23 · 388 added, 518 removed, 370 unchanged (71% of the section changed)

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Horton, Inc., a Delaware corporation, and its predecessors and subsidiaries.

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

Our homebuilding operations are our core business and primarily include the construction and sale of single-family homes with sales prices generally ranging from $150,000 to more than $1,000,000, with an average closing price of $315,000 during the nine months ended June 30, 2021.

Approximately 91% of our home sales revenue in the nine months ended June 30, 2021 was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

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

Approximately 91% of our home sales revenue in the three months ended December 31, 2021 was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

Our position as the most geographically diverse and largest volume homebuilder in the United States provides a strong platform for us to compete for new home sales.

Our product offerings include a broad range of homes for entry-level, move-up, active adult and luxury buyers across our markets.

Our product offerings include a broad range of homes for entry-level, move-up, active adult and luxury buyers.

Our entry-level homes at affordable price points have experienced very strong demand from homebuyers, as this segment of the new home market remains under-served, with low inventory levels relative to demand.

During fiscal 2020, we also 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, we generally market the community for a bulk sale of homes.

These operations are reported in our homebuilding segment.

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

At June 30, 2021, our homebuilding inventory included $303.1 million of assets related to 44 single-family rental communities, and our single-family rental platform included 2,340 homes and finished lots, of which 680 homes were completed.

At June 30, 2021, we owned 64% of the outstanding shares of Forestar Group Inc.

At December 31, 2021, we owned 63% of the outstanding shares of Forestar Group Inc.

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

Forestar has made significant investments in land acquisition and development over the last few years to expand its business across the United States.

Forestar has made significant investments in land acquisition and development over the last few years to expand its business across our homebuilding operating footprint.

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

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

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

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

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

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

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

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

Our 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 our homebuilding, Forestar, financial services and rental operations, we engage in other business activities through our subsidiaries.

We conduct insurance-related operations, own non-residential real estate including ranch land and improvements and own and operate energy-related assets.

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

Our multi-family rental operations develop, construct, lease, own and sell multi-family residential properties that produce rental income.

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

After we complete construction and achieve a stabilized level of leased occupancy, the property is typically marketed for sale.

At June 30, 2021 and September 30, 2020, our consolidated balance sheets included $458.3 million and $246.2 million, respectively, of assets related to multi-family rental operations.

Total assets related to other business activities were $632.2 million and $379.4 million at June 30, 2021 and September 30, 2020, respectively.

During the nine months ended June 30, 2021, the number and value of our net sales orders increased 20% and 33%, respectively, compared to the prior year period.

During the nine months ended June 30, 2021, our number of homes closed and home sales revenues increased 33% and 41%, respectively, compared to the prior year period, and our consolidated revenues increased 41% to $19.7 billion compared to $13.9 billion in the prior year period.

Our pre-tax income was $3.6 billion in the nine months ended June 30, 2021 compared to $1.9 billion in the prior year period, and our pre-tax operating margin was 18.5% compared to 13.9%.

Net income was $2.8 billion in the nine months ended June 30, 2021 compared to $1.5 billion in the prior year period.

In the trailing twelve months ended June 30, 2021, our return on equity (ROE) was 29.5% compared to 19.9% in the prior year period, and our homebuilding return on inventory (ROI) was 34.9% compared to 21.6%.

During the three months ended December 31, 2021, the number and value of our net sales orders increased 5% and 29%, respectively, compared to the prior year period.

During the three months ended December 31, 2021, our number of homes closed decreased 2%, while our home sales revenues increased 17% compared to the prior year.

Our consolidated revenues increased 19% to $7.1 billion compared to $5.9 billion in the prior year period.

Our pre-tax income was $1.5 billion in the three months ended December 31, 2021 compared to $1.0 billion in the prior year period, and our pre-tax operating margin was 21.2% compared to 17.4%.

Net income was $1.1 billion in the three months ended December 31, 2021 compared to $795.2 million in the prior year period, and our diluted earnings per share was $3.17 compared to $2.14.

In the trailing twelve months ended December 31, 2021, our return on equity (ROE) was 32.4% compared to 24.4% in the prior year period, and our homebuilding return on inventory (ROI) was 38.5% compared to 27.9%.

ROE is calculated as net income attributable to D.R.

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Homebuilding ROI is calculated as homebuilding pre-tax income for the trailing twelve months divided by average inventory, where average inventory is the sum of ending homebuilding inventory balances for the trailing five quarters divided by five.

During March 2020, the impacts of the COVID-19 pandemic and the related widespread reductions in economic activity across the United States began to adversely affect our business.

As economic activity resumed and restrictive orders relating to COVID-19 were eased, demand for our homes improved significantly during the remainder of fiscal 2020 and has remained strong throughout fiscal 2021.

During 2020, the impacts of the COVID-19 pandemic significantly disrupted economic activity across the United States.

As economic activity resumed, demand for our homes improved significantly and has remained strong throughout fiscal 2021 and into fiscal 2022.

We believe the increase in demand has been fueled by historically low interest rates on mortgage loans and the limited supply of homes at affordable price points across most of our markets.

We are well-positioned for increased demand with our affordable product offerings, lot supply and housing inventory.

However, multiple disruptions in the supply chain, combined with the improvement in economic conditions and strong demand for new homes, have resulted in shortages in certain building materials and tightness in the labor market, which has caused our construction cycle to lengthen.

During the current quarter, we have slowed our home sales pace to more closely align with our production levels, and we are selling homes later in the construction cycle when we have more certainty regarding the home close date for our homebuyers.

Based on the stage of completion of our current homes in inventory, production schedules and capacity, we expect to continue restricting the pace of our sales orders during our fourth fiscal quarter.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 76% of the lots owned and controlled at June 30, 2021 compared to 70% at September 30, 2020 and 66% at June 30, 2020.

Our relationship with Forestar and expanded relationships with other land developers across the country have allowed us to increase the controlled portion of our lot pipeline .

However, multiple disruptions in the supply chain, combined with the strong demand for new homes, have resulted in shortages in certain building materials, which, together with tightness in the labor market, has caused our construction cycle to lengthen.

We have slowed our home sales pace to more closely align with our production levels, and we are selling homes later in the construction cycle when we have more certainty regarding the home close date for our homebuyers.

Based on the current availability of labor and materials, the stage of completion of our current homes in inventory, production schedules and capacity, we expect to continue restricting the pace of our sales orders as necessary in our communities in the near term to match our production levels.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 76% of the lots owned and controlled at both December 31, 2021 and September 30, 2021 compared to 72% at December 31, 2020.

Our relationship with Forestar and expanded relationships with other land developers across the country have allowed us to continue to increase the controlled portion of our lot pipeline .

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through changing economic conditions.

We plan to continue to generate strong cash flows from our homebuilding operations and manage our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments in each of our communities based on local housing market conditions.

Our operating strategy focuses on enhancing long-term value to our shareholders by leveraging our financial and competitive position in our core homebuilding business to maximize the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to navigate changing economic conditions and make opportunistic strategic investments.

We made operational adjustments as a result of COVID-19;

however, our strategy remains consistent and includes the following initiatives:

Our operating strategy focuses on enhancing long-term value to our shareholders by leveraging our financial and competitive position to maximize the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to navigate changing economic conditions.

Our strategy remains consistent and includes the following initiatives:

• Developing and retaining highly experienced and productive teams of personnel throughout our company that are aligned and focused on continuous improvement in our operational execution and financial performance.

• Maintaining a strong cash balance and overall liquidity position and controlling our level of debt.

• Maintaining a significant cash balance and strong overall liquidity position while controlling our level of debt.

• Allocating and actively managing our inventory investments across our operating markets to diversify our geographic risk.

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• Investing in land and land development in desirable markets, while controlling the level of land and lots we own in each market relative to the local new home demand.

• Continuing to seek opportunities to expand the portion of our land and finished lots controlled through purchase contracts with Forestar and other land developers across the country.

• Continuing to seek opportunities to expand the portion of our land and finished lots controlled through purchase contracts with Forestar and other land developers.

• Controlling the cost of goods purchased from both vendors and subcontractors.

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• Controlling our selling, general and administrative (SG&A) expense infrastructure to match production levels.

• Opportunistically evaluating potential acquisitions to enhance our operations and improve returns.

• Ensuring that our financial services business provides high quality mortgage and title services to homebuyers efficiently and effectively.

• Increasing our investments in the construction and leasing of single-family and multi-family rental properties to meet rental demand in high growth suburban markets and selling these properties profitably.

• Opportunistically evaluating potential acquisitions to enhance our operating platform.

We believe our operating strategy, which has produced positive results in recent years, will allow us to successfully operate through changing economic conditions to maintain and improve our financial and competitive position.

However, we cannot provide any assurances that the initiatives listed above will continue to be successful, and we may need to adjust parts of our strategy to meet future market conditions.

Key financial results as of and for the three months ended June 30, 2021, as compared to the same period of 2020, were as follows:

Key financial results as of and for the three months ended December 31, 2021, as compared to the same period of 2020, were as follows:

Homebuilding:

• Homebuilding revenues increased 17% to $6.7 billion compared to $5.7 billion.

• Homes closed increased 22% to 21,588 homes, and the average closing price of those homes was $326,100.

• Net sales orders decreased 17% to 17,952 homes, while the value of net sales orders increased 2% to $6.4 billion.

• Homes closed decreased 2% to 18,396 homes, while the average closing price of those homes increased 19% to $361,800.

• Net sales orders increased 5% to 21,522 homes, and the value of net sales orders increased 29% to $8.3 billion.

• Sales order backlog increased 3% to 29,347 homes, and the value of sales order backlog increased 24% to $11.1 billion.

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• Homebuilding pre-tax income was 20.0% of homebuilding revenues compared to 16.1%.

• Homebuilding cash and cash equivalents totaled $1.7 billion compared to $2.6 billion and $1.9 billion at September 30, 2020 and June 30, 2020, respectively.

• Homebuilding inventories totaled $13.9 billion compared to $11.0 billion and $10.9 billion at September 30, 2020 and June 30, 2020, respectively.

• Homes in inventory totaled 47,300 compared to 38,000 and 32,800 at September 30, 2020 and June 30, 2020, respectively.

• Owned lots totaled 123,900 compared to 112,600 and 115,200 at September 30, 2020 and June 30, 2020, respectively.

Lots controlled through purchase contracts increased to 393,200 from 264,300 and 220,300 at September 30, 2020 and June 30, 2020, respectively.

• Homebuilding debt was $2.6 billion compared to $2.5 billion at both September 30, 2020 and June 30, 2020.

• Homebuilding debt to total capital was 16.0% compared to 17.5% and 18.4% at September 30, 2020 and June 30, 2020, respectively.

• Homebuilding cash and cash equivalents totaled $2.1 billion compared to $3.0 billion and $2.1 billion at September 30, 2021 and December 31, 2020, respectively.

• Homebuilding inventories totaled $15.3 billion compared to $13.9 billion and $12.1 billion at September 30, 2021 and December 31, 2020, respectively.

• Homes in inventory totaled 54,800 compared to 47,800 and 42,100 at September 30, 2021 and December 31, 2020, respectively.

• Owned lots totaled 131,900 compared to 127,800 and 122,000 at September 30, 2021 and December 31, 2020, respectively.

Lots controlled through purchase contracts increased to 419,500 from 402,500 and 318,700 at September 30, 2021 and December 31, 2020, respectively.

• Homebuilding debt was $3.3 billion compared to $3.2 billion and $2.6 billion at September 30, 2021 and December 31, 2020, respectively.

• Homebuilding debt to total capital was 17.3% compared to 17.8% and 17.3% at September 30, 2021 and December 31, 2020, respectively.

Net homebuilding debt to total capital was 6.9% compared to 1.7% and 3.9% at September 30, 2021 and December 31, 2020, respectively.

• Forestar’s revenues increased 33% to $407.6 million compared to $307.1 million.

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Horton totaled 4,014 compared to 3,389.

• Forestar’s pre-tax income was $21.1 million, including an $18.1 million loss on extinguishment of debt, compared to $10.3 million.

• Forestar’s pre-tax income was 6.7% of Forestar revenues compared to 5.8%.

• Forestar’s cash and cash equivalents totaled $116.0 million compared to $394.3 million and $355.6 million at September 30, 2020 and June 30, 2020, respectively.

• Forestar’s inventories totaled $1.9 billion compared to $1.3 billion at both September 30, 2020 and June 30, 2020.

• Forestar’s owned and controlled lots totaled 96,600 compared to 60,500 and 50,700 at September 30, 2020 and June 30, 2020, respectively.

Of these lots, 39,400 were under contract to sell to or subject to a right of first offer with D.R.

Horton compared to 30,400 and 29,600 at September 30, 2020 and June 30, 2020, respectively.

• Forestar’s debt was $704.1 million compared to $641.1 million and $640.6 million at September 30, 2020 and June 30, 2020, respectively.

• Forestar’s debt to total capital was 42.1% compared to 42.4% and 43.1% at September 30, 2020 and June 30, 2020, respectively.

Forestar’s net debt to total capital was 37.8% compared to 22.1% and 25.2% at September 30, 2020 and June 30, 2020, respectively.

Financial Services:

• Financial services revenues increased 20% to $188.7 million compared to $156.6 million.

• Financial services pre-tax income increased 2% to $70.3 million compared to $68.8 million.

• Financial services pre-tax income was 37.3% of financial services revenues compared to 43.9%.

Consolidated Results:

• Consolidated pre-tax income increased 81% to $1.4 billion compared to $782.4 million.

• Consolidated pre-tax income was 19.4% of consolidated revenues compared to 14.5%.

• Income tax expense was $299.1 million compared to $149.5 million, and our effective tax rate was 21.1% compared to 19.1%.

• Net income attributable to D.R.

Horton increased 77% to $1.1 billion compared to $630.7 million.

• Diluted net income per common share attributable to D.R.

Horton increased 78% to $3.06 compared to $1.72.

• Stockholders’ equity was $13.8 billion compared to $11.8 billion and $11.0 billion at September 30, 2020 and June 30, 2020, respectively.

• Book value per common share increased to $38.54 compared to $32.53 and $30.38 at September 30, 2020 and June 30, 2020, respectively.

• Debt to total capital was 24.2% compared to 26.6% and 28.0% at September 30, 2020 and June 30, 2020, respectively.

Key financial results for the nine months ended June 30, 2021, as compared to the same period of 2020, were as follows:

Homebuilding:

• Homebuilding revenues increased 41% to $19.0 billion compared to $13.5 billion.

• Homes closed increased 33% to 60,028 homes, and the average closing price of those homes was $315,000.

• Net sales orders increased 20% to 65,429 homes, and the value of net sales orders increased 33% to $21.7 billion.

• Home sales gross margin was 24.9% compared to 21.3%.

• Homebuilding SG&A expense was 7.5% of homebuilding revenues compared to 8.4%.

• Homebuilding pre-tax income was $3.3 billion compared to $1.7 billion.

• Homebuilding pre-tax income was 17.5% of homebuilding revenues compared to 12.9%.

• Net cash provided by homebuilding operations was $276.1 million compared to $1.2 billion.

• Forestar’s revenues increased 55% to $907.1 million compared to $584.3 million.

Revenues in the current and prior year periods included $865.8 million and $548.6 million, respectively, of revenue from land and lot sales to our homebuilding segment.

• Forestar’s lots sold increased 72% to 11,013 compared to 6,396.

Lots sold to D.R.

Horton totaled 10,466 compared to 6,287.

• Forestar’s pre-tax income was $53.5 million compared to $29.2 million.

• Forestar’s pre-tax income was 9.7% of Forestar revenues compared to 7.9%.

• Forestar’s pre-tax income was 13.1% of revenues compared to 9.5%.

• Forestar’s cash and cash equivalents totaled $162.5 million compared to $153.6 million and $237.4 million at September 30, 2021 and December 31, 2020, respectively.

• Forestar’s inventories totaled $2.0 billion compared to $1.9 billion and $1.5 billion at September 30, 2021 and December 31, 2020, respectively.

• Forestar’s owned and controlled lots totaled 103,300 compared to 97,000 and 77,500 at September 30, 2021 and December 31, 2020, respectively.

Of these lots, 38,300 were under contract to sell to or subject to a right of first offer with D.R.

Horton compared to 39,200 and 34,900 at September 30, 2021 and December 31, 2020, respectively.

• Forestar’s debt was $704.9 million compared to $704.5 million and $654.1 million at September 30, 2021 and December 31, 2020, respectively.

• Forestar’s debt to total capital was 40.0% compared to 41.0% and 42.3% at September 30, 2021 and December 31, 2020, respectively.

Forestar’s net debt to total capital was 33.9% compared to 35.2% and 31.8% at September 30, 2021 and December 31, 2020, respectively.

Financial Services:

• Financial services revenues increased 65% to $601.1 million compared to $364.0 million.

• Financial services pre-tax income increased 111% to $262.1 million compared to $124.0 million.

• Financial services revenues decreased 2% to $184.3 million compared to $187.2 million.

• Financial services pre-tax income decreased 20% to $67.1 million compared to $84.1 million.

• Financial services pre-tax income was 36.4% of financial services revenues compared to 44.9%.

Consolidated Results:

• Consolidated revenues increased 19% to $7.1 billion compared to $5.9 billion.

• Consolidated pre-tax income increased 45% to $1.5 billion compared to $1.0 billion.

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• Net income attributable to D.R.

Horton increased 84% to $2.8 billion compared to $1.5 billion.

Horton increased 44% to $1.1 billion compared to $791.8 million.

• Diluted net income per common share attributable to D.R.

Horton increased 48% to $3.17 compared to $2.14.

• Net cash used in operations was $34.5 million compared to $588.9 million of cash provided by operations.

• Stockholders’ equity was $15.7 billion compared to $14.9 billion and $12.5 billion at September 30, 2021 and December 31, 2020, respectively.

• Book value per common share increased to $44.25 compared to $41.81 and $34.33 at September 30, 2021 and December 31, 2020, respectively.

• Debt to total capital was 25.1% compared to 26.7% and 25.3% at September 30, 2021 and December 31, 2020, respectively.

Net debt to total capital was 15.2% compared to 12.9% and 12.4% at September 30, 2021 and December 31, 2020, respectively.

RESULTS OF OPERATIONS - HOMEBUILDING

We conduct our homebuilding operations in the geographic regions, states and markets listed below, and we conduct our financial services operations in many of these markets.

We conduct our homebuilding operations in the geographic regions, states and markets listed below, and we conduct our financial services operations in most of these markets.

Our homebuilding operating divisions are aggregated into six reporting segments, also referred to as reporting regions, which comprise the markets below.

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State Reporting Region/Market State Reporting Region/Market

East Region Southeast Region

Delaware Central Delaware Alabama Birmingham

Northern Delaware Huntsville

Georgia Savannah Mobile/Baldwin County

Maryland Baltimore Montgomery

Suburban Washington, D.C.

Western Maryland Florida Fort Myers/Naples

New Jersey Northern New Jersey Gainesville

Southern New Jersey Jacksonville

North Carolina Asheville Lakeland

Charlotte Melbourne/Vero Beach

Greensboro/Winston-Salem Miami/Fort Lauderdale

Raleigh/Durham Ocala

Wilmington Orlando

Pennsylvania Central Pennsylvania Pensacola/Panama City

Philadelphia Port St.

South Carolina Charleston Tallahassee

Columbia Tampa/Sarasota

Greenville/Spartanburg Volusia County

Hilton Head West Palm Beach

Myrtle Beach Georgia Atlanta

Virginia Northern Virginia Augusta

Southern Virginia Mississippi Gulf Coast

Tennessee Chattanooga

Midwest Region Knoxville

Colorado Colorado Springs Memphis

Denver Nashville

Illinois Chicago Southwest Region

Indiana Fort Wayne Arizona Phoenix

Indianapolis Tucson

Northwest Indiana New Mexico Albuquerque

Iowa Des Moines

Kentucky Louisville West Region

Minnesota Minneapolis/St.

Paul California Bakersfield

Ohio Cincinnati Bay Area

Columbus Fresno

Los Angeles County

South Central Region Modesto/Merced

Louisiana Baton Rouge Riverside County

Lake Charles/Lafayette Sacramento

Oklahoma Oklahoma City San Bernardino County

Tulsa San Diego County

Texas Austin Hawaii Oahu

Bryan/College Station Nevada Las Vegas

Corpus Christi Reno

Dallas Oregon Bend

Fort Worth Portland/Salem

Houston Utah Salt Lake City

Killeen/Temple/Waco St.

Midland/Odessa Washington Seattle/Tacoma/Everett/Olympia

New Braunfels/San Marcos Spokane

San Antonio Vancouver

The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three and nine months ended June 30, 2021 and 2020.

Northwest Region South Central Region

Colorado Colorado Springs Oklahoma Oklahoma City

Fort Collins Texas Austin

Oregon Bend Beaumont

Eugene/Springfield Bryan/College Station

Portland/Salem Corpus Christi

Utah Salt Lake City Dallas

George Fort Worth

Washington Seattle/Tacoma/Everett/Olympia Houston

Spokane Killeen/Temple/Waco

Vancouver Lubbock

Midland/Odessa

Southwest Region New Braunfels/San Marcos

Arizona Phoenix San Antonio

California Bakersfield East Region

Bay Area Georgia Atlanta

Fresno/Tulare Augusta

Los Angeles County Savannah

Modesto/Merced/Stockton North Carolina Asheville

Riverside County Charlotte

Sacramento Greensboro/Winston-Salem

San Bernardino County Raleigh/Durham

San Diego County Wilmington

Hawaii Oahu South Carolina Charleston

Nevada Las Vegas Columbia

Reno Greenville/Spartanburg

New Mexico Albuquerque Hilton Head

Southeast Region Tennessee Chattanooga

Alabama Birmingham Knoxville

Huntsville Memphis

Mobile/Baldwin County Nashville

Tuscaloosa North Region

Florida Fort Myers/Naples Delaware Central Delaware

Gainesville Northern Delaware

Jacksonville Illinois Chicago

Lakeland Indiana Fort Wayne

Melbourne/Vero Beach Indianapolis

Miami/Fort Lauderdale Northwest Indiana

Ocala Iowa Des Moines

Orlando Iowa City/Cedar Rapids

Pensacola/Panama City Kentucky Louisville

Lucie Maryland Baltimore

Tallahassee Suburban Washington, D.C.

Tampa/Sarasota Western Maryland

Volusia County Minnesota Minneapolis/St.

West Palm Beach Nebraska Omaha

Louisiana Baton Rouge New Jersey Northern New Jersey

Lake Charles/Lafayette Southern New Jersey

Mississippi Gulf Coast Ohio Cincinnati

Pennsylvania Central Pennsylvania

Virginia Northern Virginia

Southern Virginia

West Virginia Eastern West Virginia

The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three months ended December 31, 2021 and 2020.

During the fourth quarter of fiscal 2021, we reassessed our operating segments and reportable segments and realigned the aggregation of our homebuilding operating segments into six new reportable segments to better allocate our 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.

Net Sales Orders (1)

Three Months Ended June 30,

Three Months Ended December 31,

Net Homes Sold Value (In millions) Average Selling Price

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Change 2021 2020 %

East 2,158 2,803 (23) % $ 766.3 $ 837.8 (9) % $ 355,100 $ 298,900 19 %

Midwest 789 1,374 (43) % 327.2 483.8 (32) % 414,700 352,100 18 %

Southeast 5,843 6,991 (16) % 1,956.6 1,920.0 2 % 334,900 274,600 22 %

South Central 5,897 6,644 (11) % 1,826.8 1,693.5 8 % 309,800 254,900 22 %

Northwest 1,228 997 23 % $ 657.1 $ 470.8 40 % $ 535,100 $ 472,200 13 %

Southwest 2,301 2,228 3 % 1,183.8 906.7 31 % 514,500 407,000 26 %

West 2,435 2,690 (9) % 1,256.2 1,116.8 12 % 515,900 415,200 24 %

17,952 21,519 (17) % $ 6,448.9 $ 6,337.3 2 % $ 359,200 $ 294,500 22 %

Nine Months Ended June 30,

Net Homes Sold Value (In millions) Average Selling Price

Change 2021 2020 %

East 8,079 7,393 9 % $ 2,702.3 $ 2,188.3 23 % $ 334,500 $ 296,000 13 %

Midwest 3,814 3,514 9 % 1,494.8 1,245.5 20 % 391,900 354,400 11 %

Southeast 22,323 17,381 28 % 6,992.7 4,746.7 47 % 313,300 273,100 15 %

South Central 5,862 6,172 (5) % 1,946.2 1,675.8 16 % 332,000 271,500 22 %

Southwest 3,050 2,626 16 % 1,042.8 752.8 39 % 341,900 286,700 19 %

West 7,002 7,260 (4) % 3,441.6 3,147.9 9 % 491,500 433,600 13 %

Southeast 6,394 5,930 8 % 2,284.8 1,727.4 32 % 357,300 291,300 23 %

East 3,980 3,678 8 % 1,454.9 1,118.8 30 % 365,600 304,200 20 %

North 1,757 1,413 24 % 729.6 516.5 41 % 415,300 365,500 14 %

21,522 20,418 5 % $ 8,256.4 $ 6,416.0 29 % $ 383,600 $ 314,200 22 %

Sales Order Cancellations

Three Months Ended June 30,

Three Months Ended December 31,

Cancelled Sales Orders Value (In millions) Cancellation Rate (2)

2021 2020 2021 2020 2021 2020

East 532 841 $ 173.3 $ 239.7 20 % 23 %

Midwest 188 311 68.2 98.8 19 % 18 %

Southeast 1,123 2,005 351.1 556.3 16 % 22 %

South Central 1,438 1,970 417.3 507.4 20 % 23 %

Northwest 148 167 $ 77.2 $ 77.3 11 % 14 %

Southwest 443 399 205.3 146.8 16 % 15 %

West 267 565 135.7 243.6 10 % 17 %

3,712 5,968 $ 1,199.6 $ 1,723.2 17 % 22 %

Nine Months Ended June 30,

Cancelled Sales Orders Value (In millions) Cancellation Rate (2)

2021 2020 2021 2020 2021 2020

East 1,771 1,931 $ 549.3 $ 551.3 18 % 21 %

Midwest 725 696 266.2 225.7 16 % 17 %

Southeast 4,734 4,871 1,404.2 1,340.0 17 % 22 %

South Central 1,339 1,305 433.7 342.6 19 % 17 %

Southwest 556 660 170.3 187.8 15 % 20 %

West 768 1,251 365.8 552.3 10 % 15 %

Southeast 1,083 1,431 361.0 401.5 14 % 19 %

East 661 863 225.2 246.7 14 % 19 %

North 246 243 97.7 82.7 12 % 15 %

3,920 4,408 $ 1,400.1 $ 1,297.6 15 % 18 %

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Net Sales Orders

The number of net sales orders decreased 17% in the three months ended June 30, 2021 compared to the prior year period, while the value of net sales orders increased 2% to $6.4 billion (17,952 homes) for the three months ended June 30, 2021 compared to $6.3 billion (21,519 homes) in the prior year period due to the increase in our average selling price.

The average selling price of net sales orders during the three months ended June 30, 2021 was $359,200, up 22% from the prior year period.

During the third quarter of fiscal 2021, demand for homes remained strong.

As a result, during the quarter, we slowed our home sales pace to more closely align with our production levels, and we are selling homes later in the construction cycle when we have more certainty regarding the home close date for our homebuyers.

Based on the stage of completion of our current homes in inventory, production schedules and capacity, we expect to continue restricting the pace of our sales orders during our fourth fiscal quarter.

The number of net sales orders increased 20% in the nine months ended June 30, 2021 compared to the prior year period, and the value of net sales orders increased 33% to $21.7 billion (65,429 homes) for the nine months ended June 30, 2021 compared to $16.3 billion (54,732 homes) in the prior year period.

The average selling price of net sales orders during the nine months ended June 30, 2021 was $331,900, up 11% from the prior year period.

The markets contributing most to the year to date increases in sales volumes in our regions in the nine month period were as follows:

the Carolina markets in the East;

the Denver market in the Midwest;

the Florida markets (particularly Tampa) in the Southeast;

the San Antonio, Dallas and Louisiana markets in the South Central;

and the Phoenix market in the Southwest.

The decrease in sales volume in our West region in both periods compared to the prior year was primarily due to our Seattle and Portland markets.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 17% in both the three and nine months ended June 30, 2021 compared to 22% and 20% in the prior year periods.

The number of net sales orders increased 5% in the three months ended December 31, 2021 compared to the prior year period.

The value of net sales orders increased 29% to $8.3 billion (21,522 homes) compared to $6.4 billion (20,418 homes) in the prior year period, primarily due to the increase in our average selling price.

The average selling price of net sales orders during the three months ended December 31, 2021 was $383,600, up 22% from the prior year period.

During fiscal 2021 and in the first quarter of fiscal 2022, demand for homes remained strong.

As a result, we have slowed our home sales pace to more closely align with our production levels, and we are selling homes later in the construction cycle when we have more certainty regarding the home close date for our homebuyers.

Based on the stage of completion of our current homes in inventory, production schedules and capacity, we expect to continue restricting the pace of our sales orders as necessary in our communities in the near term to match our production levels.

Although these challenges may persist to some degree for some time, we currently expect to close more homes in fiscal 2022 than we closed in fiscal 2021.

The markets contributing most to the increase in sales volume in the Northwest were Salt Lake City and Portland, and those contributing most to the increase in the North were Indianapolis and Suburban Washington, D.C.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 15% in the three months ended December 31, 2021 compared to 18% in the prior year period.

Sales Order Backlog

As of June 30,

As of December 31,

Homes in Backlog Value (In millions) Average Selling Price

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Change 2021 2020 %

East 3,324 3,028 10 % $ 1,141.2 $ 929.3 23 % $ 343,300 $ 306,900 12 %

Midwest 2,075 1,834 13 % 832.3 646.6 29 % 401,100 352,600 14 %

Southeast 9,831 6,675 47 % 3,275.3 1,873.7 75 % 333,200 280,700 19 %

South Central 11,601 7,380 57 % 3,467.0 1,920.0 81 % 298,900 260,200 15 %

Northwest 1,157 1,334 (13) % $ 605.9 $ 616.7 (2) % $ 523,700 $ 462,300 13 %

Southwest 3,795 3,828 (1) % 1,768.2 1,419.0 25 % 465,900 370,700 26 %

West 2,849 2,940 (3) % 1,433.7 1,259.4 14 % 503,200 428,400 17 %

South Central 9,158 8,289 10 % 3,079.2 2,250.0 37 % 336,200 271,400 24 %

Southeast 8,389 7,594 10 % 3,009.2 2,231.8 35 % 358,700 293,900 22 %

East 5,069 5,038 1 % 1,849.6 1,542.2 20 % 364,900 306,100 19 %

North 1,779 2,404 (26) % 751.0 875.1 (14) % 422,100 364,000 16 %

29,347 28,487 3 % $ 11,063.1 $ 8,934.8 24 % $ 377,000 $ 313,600 20 %

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Homes Closed and Home Sales Revenue

Three Months Ended June 30,

Three Months Ended December 31,

Homes Closed Value (In millions) Average Selling Price

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Change 2021 2020 %

East 3,077 2,500 23 % $ 1,032.6 $ 735.2 40 % $ 335,600 $ 294,100 14 %

Midwest 1,371 1,053 30 % 514.2 372.7 38 % 375,100 353,900 6 %

Southeast 7,456 5,921 26 % 2,276.4 1,627.8 40 % 305,300 274,900 11 %

South Central 6,222 5,397 15 % 1,705.1 1,375.6 24 % 274,000 254,900 7 %

Northwest 1,025 1,207 (15) % $ 548.9 $ 547.1 — % $ 535,500 $ 453,300 18 %

Southwest 1,944 2,142 (9) % 911.5 829.0 10 % 468,900 387,000 21 %

West 2,516 2,021 24 % 1,220.8 882.5 38 % 485,200 436,700 11 %

21,588 17,642 22 % $ 7,040.1 $ 5,207.6 35 % $ 326,100 $ 295,200 10 %

Nine Months Ended June 30,

Homes Closed Value (In millions) Average Selling Price

Change 2021 2020 %

East 8,338 6,281 33 % $ 2,698.4 $ 1,835.1 47 % $ 323,600 $ 292,200 11 %

Midwest 3,755 2,743 37 % 1,394.1 963.6 45 % 371,300 351,300 6 %

Southeast 20,748 14,983 38 % 6,095.9 4,092.5 49 % 293,800 273,100 8 %

South Central 5,437 5,221 4 % 1,692.3 1,362.5 24 % 311,300 261,000 19 %

Southwest 2,526 2,093 21 % 766.3 609.5 26 % 303,400 291,200 4 %

West 7,063 5,696 24 % 3,273.1 2,542.7 29 % 463,400 446,400 4 %

Southeast 5,324 5,258 1 % 1,810.3 1,464.3 24 % 340,000 278,500 22 %

East 3,128 3,497 (11) % 1,074.7 1,003.1 7 % 343,600 286,800 20 %

North 1,538 1,414 9 % 618.7 492.7 26 % 402,300 348,400 15 %

18,396 18,739 (2) % $ 6,656.4 $ 5,698.7 17 % $ 361,800 $ 304,100 19 %

Home Sales Revenue

Revenues from home sales increased 35% to $7.0 billion (21,588 homes closed) for the three months ended June 30, 2021 from $5.2 billion (17,642 homes closed) in the prior year period.

Revenues from home sales increased 41% to $18.9 billion (60,028 homes closed) for the nine months ended June 30, 2021 from $13.4 billion (45,140 homes closed) in the prior year period.

Home sales revenues increased in all of our regions due to an increase in the number of homes closed and an increase in average selling prices.

Home sales revenues and the number of homes closed exclude sales of single-family and multi-family rental communities.

The number of homes closed increased 22% in the three months ended June 30, 2021 compared to the prior year period.

The markets contributing most to the increased closing volumes in our regions were as follows:

the Carolina markets (particularly Myrtle Beach) in the East;

the Indianapolis and Denver markets in the Midwest;

the Florida markets (particularly Tampa) in the Southeast;

the Houston, Louisiana and Austin markets in the South Central;

the Phoenix market in the Southwest;

and the Salt Lake City, Reno and Sacramento markets in the West.

The number of homes closed increased 33% in the nine months ended June 30, 2021 compared to the prior year period.

The markets contributing most to the increased closing volumes in our regions were as follows:

the Carolina markets (particularly Myrtle Beach) in the East;

the Denver and Indianapolis markets in the Midwest;

the Florida markets (particularly Tampa) in the Southeast;

the Houston, Dallas and San Antonio markets in the South Central;

the Phoenix market in the Southwest;

and the Las Vegas, Southern California and Sacramento markets in the West.

Revenues from home sales increased 17% to $6.7 billion (18,396 homes closed) for the three months ended December 31, 2021 from $5.7 billion (18,739 homes closed) in the prior year period.

Home sales revenues increased in all of our regions, primarily due to an increase in average selling price.

The number of homes closed decreased 2% in the three months ended December 31, 2021 compared to the prior year period, reflecting the effect of supply chain disruptions in recent quarters.

In regions with a decrease in closings volume, the markets contributing most to the decreases were as follows:

the Seattle and Portland markets in the Northwest;

the Las Vegas market in the Southwest;

and the Atlanta market in the East.

Homebuilding Operating Margin Analysis

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Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Gross profit – home sales 27.4 % 24.1 %

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Selling, general and administrative expense 7.5 % 7.9 %

Gain on sale of assets — % — % (0.1) % — %

Other (income) expense (0.1) % — %

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Home Sales Gross Profit

Gross profit from home sales increased to $1.8 billion in the three months ended June 30, 2021 from $1.1 billion in the prior year period and increased 430 basis points to 25.9% as a percentage of home sales revenues.

Gross profit from home sales increased to $1.8 billion in the three months ended December 31, 2021 from $1.4 billion in the prior year period and increased 330 basis points to 27.4% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 310 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes, 10 basis points due to a decrease in the amortization of capitalized interest and 10 basis points due to a decrease in warranty and construction defect costs.

Gross profit from home sales increased to $4.7 billion in the nine months ended June 30, 2021 from $2.9 billion in the prior year period and increased 360 basis points to 24.9% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 330 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes, 20 basis points due to a decrease in warranty and construction defect costs and 10 basis points due to a decrease in the amortization of capitalized interest.

We remain focused on managing the pricing, incentives and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions and new home demand.

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Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $30.2 million and $67.4 million in the three and nine months ended June 30, 2021, respectively, and $14.5 million and $49.7 million in the comparable periods of fiscal 2020.

During the current quarter, we began recording bulk sales of single-family rental communities in land/lot sales and other revenues in our homebuilding segment.

Revenues during the three and nine months ended June 30, 2021 included our sale of a single-family rental community for $23.1 million in the current quarter, which generated $11.4 million of gross profit.

Land/lot sales and other revenues from our homebuilding operations were $23.0 million and $17.9 million in the three months ended December 31, 2021 and 2020, respectively.

We continually evaluate our land and lot supply, and fluctuations in revenues and profitability from land sales occur based on how we manage our inventory levels in various markets.

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We may also sell residential lots or land parcels to manage our supply or for other strategic reasons.

As of June 30, 2021, our homebuilding operations had $23.5 million of land held for sale that we expect to sell in the next twelve months.

As of December 31, 2021, our homebuilding operations had $24.8 million of land held for sale that we expect to sell in the next twelve months.

Inventory and Land Option Charges

At the end of each quarter, we review the performance and outlook for all of our communities and land inventories for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary.

As of June 30, 2021, we 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.

As of December 31, 2021, we 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.

As we manage our inventory investments across our operating markets to optimize returns and cash flows, we may modify our pricing and incentives, construction and development plans or land sale strategies in individual active communities and land held for development, which could result in the affected communities being evaluated for potential impairment.

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These evaluations could result in additional impairment charges which could be significant.

During the three and nine months ended June 30, 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $4.9 million and $10.4 million, respectively, compared to $4.9 million and $15.6 million in the same periods of fiscal 2020.

During the three months ended December 31, 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $3.9 million compared to $2.3 million in the same period of fiscal 2020.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 21% to $502.0 million and 25% to $1.4 billion in the three and nine months ended June 30, 2021, respectively, from $415.1 million and $1.1 billion in the prior year periods.

SG&A expense as a percentage of homebuilding revenues was 7.1% and 7.5% in the three and nine months ended June 30, 2021, respectively, compared to 7.9% and 8.4% in the prior year periods.

Employee compensation and related costs represented 82% and 81% of SG&A costs in the three and nine months ended June 30, 2021, respectively, compared to 77% and 75% in the prior year periods.

These costs increased 29% to $411.6 million and 36% to $1.1 billion in the three and nine months ended June 30, 2021, respectively, from $320.3 million and $848.0 million in the prior year periods.

Our homebuilding operations employed 8,203 and 7,077 people at June 30, 2021 and 2020, respectively.

SG&A expense from homebuilding activities increased 11% to $497.7 million in the three months ended December 31, 2021 from $449.4 million in the prior year period.

SG&A expense as a percentage of homebuilding revenues was 7.5% and 7.9% in the three months ended December 31, 2021 and 2020, respectively.

Employee compensation and related costs were $409.6 million and $356.0 million in the three months ended December 31, 2021 and 2020, respectively, representing 82% and 79% of SG&A costs in those periods.

These costs increased 15% in the three months ended December 31, 2021 from the prior year period.

Our homebuilding operations employed 8,699 and 7,583 people at December 31, 2021 and 2020, respectively.

We attempt to control our SG&A costs while ensuring that our infrastructure adequately supports our operations;

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Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer.

Interest incurred by our homebuilding operations was $22.7 million and $69.7 million in the three and nine months ended June 30, 2021, respectively, compared to $22.3 million and $69.5 million in the prior year periods.

Interest charged to cost of sales was 0.7% of total cost of sales (excluding inventory and land option charges) in both the three and nine months ended June 30, 2021 compared to 0.8% in both prior year periods.

Gain on Sale of Assets

In December 2020, we sold a single-family rental community for $31.8 million which resulted in a gain on sale of $13.1 million in our homebuilding segment and $0.9 million in our other businesses during the nine months ended June 30, 2021.

Other income, net of other expenses, included in our homebuilding operations was $7.1 million and $10.4 million in the three and nine months ended June 30, 2021, respectively, compared to $0.2 million and $9.7 million in the prior year periods.

Interest incurred by our homebuilding operations was $24.8 million and $24.4 million in the three months ended December 31, 2021 and 2020, respectively.

Interest charged to cost of sales was 0.7% and 0.8% of total cost of sales (excluding inventory and land option charges), respectively, in those periods.

Other income, net of other expenses, included in our homebuilding operations was $6.2 million and $2.1 million in the three months ended December 31, 2021 and 2020, respectively.

Other income consists of interest income and various other types of ancillary income, gains, expenses and losses not directly associated with sales of homes, land and lots.

Beginning in the current quarter, rental income of $2.9 million from our single-family rental communities is also included in other income in our homebuilding segment.

The activities that result in this ancillary income are not significant, either individually or in the aggregate.

Business Acquisition

In October 2020, we 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.

We also acquired a sales order backlog of approximately 125 homes.

Homebuilding Results by Reporting Region

Three Months Ended June 30,

Revenues Homebuilding

Income (1) % of

Three Months Ended December 31,

Revenues Homebuilding

Income (1) Pre-tax Income as a Percentage of Homebuilding Revenues Homebuilding

Revenues Homebuilding

Income (1) % of

Income (1) Pre-tax Income as a Percentage of Homebuilding Revenues

(In millions)

East $ 1,032.7 $ 190.3 18.4 % $ 736.3 $ 106.9 14.5 %

Midwest 514.6 67.2 13.1 % 373.3 34.1 9.1 %

Southeast 2,300.1 465.3 20.2 % 1,629.1 233.5 14.3 %

South Central 1,709.8 323.1 18.9 % 1,376.4 201.8 14.7 %

Northwest $ 569.0 $ 111.8 19.6 % $ 548.0 $ 86.8 15.8 %

Southwest 911.6 159.3 17.5 % 838.6 115.2 13.7 %

West 1,222.1 244.3 20.0 % 890.9 103.8 11.7 %

$ 7,070.3 $ 1,336.9 18.9 % $ 5,222.1 $ 709.8 13.6 %

Nine Months Ended June 30,

Revenues Homebuilding

Income (1) % of

Revenues Homebuilding

Income (1) % of

(In millions)

East $ 2,703.4 $ 468.8 17.3 % $ 1,836.5 $ 240.1 13.1 %

Midwest 1,396.1 177.3 12.7 % 964.6 76.4 7.9 %

Southeast 6,133.4 1,147.8 18.7 % 4,096.4 567.4 13.9 %

South Central 1,694.3 354.3 20.9 % 1,363.5 240.0 17.6 %

Southwest 766.7 124.8 16.3 % 626.8 95.0 15.2 %

West 3,288.2 550.9 16.8 % 2,558.1 267.3 10.4 %

Southeast 1,810.9 415.4 22.9 % 1,465.0 247.2 16.9 %

East 1,074.9 202.3 18.8 % 1,007.7 170.7 16.9 %

North 618.7 89.9 14.5 % 493.8 62.7 12.7 %

$ 6,679.4 $ 1,333.0 20.0 % $ 5,716.6 $ 922.6 16.1 %

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The amortization of capitalized interest and property taxes is allocated to each segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each segment based on the segment’s inventory balances.

East Region — Homebuilding revenues increased 40% and 47% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in our Myrtle Beach, Delaware, Raleigh and Suburban Washington, D.C.

The region generated pre-tax income of $190.3 million and $468.8 million in the three and nine months ended June 30, 2021, respectively, compared to $106.9 million and $240.1 million in the prior year periods.

Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 340 and 350 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 60 and 100 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Midwest Region — Homebuilding revenues increased 38% and 45% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in our Denver, Indianapolis and Chicago markets.

The region generated pre-tax income of $67.2 million and $177.3 million in the three and nine months ended June 30, 2021, respectively, compared to $34.1 million and $76.4 million in the prior year periods.

Home sales gross profit percentage increased by 310 and 340 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 10 and 120 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 41% and 50% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in all of our markets.

The region generated pre-tax income of $465.3 million and $1.1 billion in the three and nine months ended June 30, 2021, respectively, compared to $233.5 million and $567.4 million in the prior year periods.

Home sales gross profit percentage increased by 460 and 380 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing while the average cost of those homes decreased slightly.

As a percentage of homebuilding revenues, SG&A expenses decreased by 90 and 100 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 24% and 38% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in our Houston, Dallas, San Antonio and Austin markets.

The region generated pre-tax income of $323.1 million and $854.6 million in the three and nine months ended June 30, 2021, respectively, compared to $201.8 million and $490.7 million in the prior year periods.

Home sales gross profit percentage increased by 360 and 270 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 60 and 70 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Southwest Region — Homebuilding revenues increased 35% and 22% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in our Phoenix market.

The region generated pre-tax income of $46.7 million and $124.8 million in the three and nine months ended June 30, 2021, respectively, compared to $29.7 million and $95.0 million in the prior year periods.

Home sales gross profit percentage increased by 190 and 180 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 40 basis points and increased by 50 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods.

The increase in the nine month period was due to increased employee compensation and related costs to support inventory growth.

West Region — Homebuilding revenues increased 37% and 29% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in our Southern California, Las Vegas, Sacramento and Reno markets.

The region generated pre-tax income of $244.3 million and $550.9 million in the three and nine months ended June 30, 2021, respectively, compared to $103.8 million and $267.3 million in the prior year periods.

Home sales gross profit percentage increased by 650 and 500 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes in the three month period and the average cost of homes closed decreasing while the average selling price increased in the nine month period.

As a percentage of homebuilding revenues, SG&A expenses decreased by 170 and 130 basis points in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Northwest Region — Homebuilding revenues increased 4% in the three months ended December 31, 2021 compared to the prior year period, due to increases in the average selling price of homes closed in all markets, while the number of homes closed decreased, particularly in the Seattle and Portland markets.

The region generated pre-tax income of $111.8 million in the three months ended December 31, 2021 compared to $86.8 million in the prior year period.

Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 480 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses increased by 40 basis points in the three months ended December 31, 2021 compared to the prior year period due to increases in employee compensation and related costs.

Southwest Region — Homebuilding revenues increased 9% in the three months ended December 31, 2021 compared to the prior year period, primarily due to increases in the average selling price of homes closed in most markets, while the number of homes closed decreased, particularly in the Las Vegas market.

The region generated pre-tax income of $159.3 million in the three months ended December 31, 2021 compared to $115.2 million in the prior year period.

Home sales gross profit percentage increased by 350 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 20 basis points in the three months ended December 31, 2021 compared to the prior year period.

South Central Region — Homebuilding revenues increased 24% in the three months ended December 31, 2021 compared to the prior year period, primarily due to increases in the average selling price of homes closed in all markets, as well as a slight increase in the number of homes closed.

The region generated pre-tax income of $354.3 million in the three months ended December 31, 2021 compared to $240.0 million in the prior year period.

Home sales gross profit percentage increased by 250 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 80 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 24% in the three months ended December 31, 2021 compared to the prior year period, primarily due to increases in the average selling price of homes closed in all markets, as well as a slight increase in the number of homes closed.

The region generated pre-tax income of $415.4 million in the three months ended December 31, 2021 compared to $247.2 million in the prior year period.

Home sales gross profit percentage increased by 460 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 90 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 7% in the three months ended December 31, 2021 compared to the prior year period, due to increases in the average selling price of homes closed in all markets, while the number of homes closed decreased, particularly in the Atlanta market.

The region generated pre-tax income of $202.3 million in the three months ended December 31, 2021 compared to $170.7 million in the prior year period.

Home sales gross profit percentage increased by 170 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses increased by 10 basis points in the three months ended December 31, 2021 compared to the prior year period.

North Region — Homebuilding revenues increased 25% in the three months ended December 31, 2021 compared to the prior year period, primarily due to increases in the average selling price of homes closed in all markets, as well as increases in the number of homes closed in several markets.

The region generated pre-tax income of $89.9 million in the three months ended December 31, 2021 compared to $62.7 million in the prior year period.

Home sales gross profit percentage increased by 200 basis points in the three months ended December 31, 2021 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses were unchanged in the three months ended December 31, 2021 compared to the prior year period as employee compensation and related costs increased at a similar rate as revenues.

HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY

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We manage our inventory of owned land and lots and homes under construction relative to demand in each of our markets, including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory.

Our homebuilding segment’s inventories at June 30, 2021 and September 30, 2020 are summarized as follows:

As of June 30, 2021

Our homebuilding segment’s inventories at December 31, 2021 and September 30, 2021 are summarized as follows:

As of December 31, 2021

Construction in Progress and

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for Development Land Held

for Sale Rental Properties (1)

Total Inventory

for Sale Total Inventory

(In millions)

East $ 955.8 $ 611.1 $ 5.6 $ 1.4 $ 31.7 $ 1,605.6

Midwest 697.8 506.1 — 1.8 20.2 1,225.9

Southeast 2,200.7 1,135.7 17.3 0.6 156.3 3,510.6

South Central 2,151.7 1,639.1 0.3 — 33.5 3,824.6

Northwest $ 667.3 $ 781.5 $ — $ 2.0 $ 1,450.8

Southwest 1,330.1 1,387.0 7.0 19.2 2,743.3

West 1,291.7 1,183.9 5.7 19.4 35.9 2,536.6

South Central 2,208.1 1,563.7 0.3 0.1 3,772.2

Southeast 2,222.0 1,209.9 13.0 — 3,444.9

East 1,296.4 820.5 — 1.4 2,118.3

North 1,032.1 519.2 5.3 1.8 1,558.4

Corporate and unallocated (1)

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(In millions)

East $ 785.3 $ 531.2 $ 5.5 $ 6.3 $ 1,328.3

Midwest 497.0 459.0 1.8 0.7 958.5

Southeast 1,655.5 1,231.5 32.3 0.6 2,919.9

South Central 1,596.3 1,282.3 0.3 1.0 2,879.9

Northwest $ 609.6 $ 685.4 $ — $ 12.5 $ 1,307.5

Southwest 1,113.5 1,315.8 6.9 9.4 2,445.6

West 1,137.3 847.1 5.7 19.0 2,009.1

South Central 1,977.4 1,501.5 0.4 — 3,479.3

Southeast 2,002.4 1,160.1 16.1 — 3,178.6

East 1,124.6 792.3 1.3 1.4 1,919.6

North 901.4 460.4 5.3 1.8 1,368.9

Corporate and unallocated (1)

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$ 7,848.0 $ 6,004.0 $ 30.4 $ 25.4 $ 13,907.8

(1) These inventory amounts relate to our single-family rental communities that are reported in our homebuilding segment.

Multi-family rental property inventory totaling $436.3 million at June 30, 2021 is included in our other segment.

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

Our homebuilding segment’s land and lot position and homes in inventory at June 30, 2021 and September 30, 2020 are summarized as follows:

As of June 30, 2021

Our land and lot position and homes in inventory at December 31, 2021 and September 30, 2021 are summarized as follows:

As of December 31, 2021

Owned (1) Lots Controlled

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Inventory (4)

East 12,800 78,100 90,900 5,600

Midwest 8,400 29,600 38,000 3,700

Southeast 25,600 139,700 165,300 14,600

South Central 47,200 93,300 140,500 15,500

Northwest 10,500 32,300 42,800 3,000

Southwest 23,500 35,200 58,700 6,500

West 22,900 36,400 59,300 4,900

South Central 44,000 67,600 111,600 15,900

Southeast 26,400 129,900 156,300 15,500

East 18,100 98,200 116,300 8,400

North 9,400 56,300 65,700 5,500

131,900 419,500 551,400 54,800

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Inventory (4)

East 11,300 50,500 61,800 4,900

Midwest 8,000 17,800 25,800 2,600

Southeast 28,700 95,700 124,400 11,500

South Central 40,100 65,200 105,300 12,600

Northwest 9,000 31,400 40,400 2,600

Southwest 22,800 34,300 57,100 5,500

West 17,300 27,500 44,800 4,600

South Central 42,800 79,000 121,800 14,000

Southeast 26,700 125,500 152,200 13,600

East 17,300 83,100 100,400 7,300

North 9,200 49,200 58,400 4,800

127,800 402,500 530,300 47,800

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___________________

(1) Land/lots owned included approximately 31,100 and 33,800 owned lots that are fully developed and ready for home construction at June 30, 2021 and September 30, 2020, respectively.

Land/lots owned also included land held for development representing 1,400 and 1,600 lots at June 30, 2021 and September 30, 2020, respectively.

Land/lots owned exclude 3,400 and 100 lots related to our single-family rental operations at June 30, 2021 and September 30, 2020, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2021 and September 30, 2020 was $15.0 billion and $9.9 billion, respectively, secured by earnest money deposits of $999.8 million and $653.4 million, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2021 and September 30, 2020 included $1.6 billion and $1.0 billion, respectively, related to lot purchase contracts with Forestar, secured by $152.7 million and $98.2 million, respectively, of earnest money.

(3) Lots controlled at June 30, 2021 included approximately 39,400 lots owned or controlled by Forestar, 21,500 of which our homebuilding divisions have under contract to purchase and 17,900 of which our homebuilding divisions have a right of first offer to purchase.

Of these, approximately 20,500 lots were in our Southeast region, 5,100 lots were in our South Central region, 4,900 lots were in our West region, 4,000 lots were in our East region, 2,500 lots were in our Southwest region and 2,400 lots were in our Midwest region.

(1) Land/lots owned included approximately 30,100 and 30,800 owned lots that are fully developed and ready for home construction at December 31, 2021 and September 30, 2021, respectively.

Land/lots owned also included land held for development representing 600 and 1,300 lots at December 31, 2021 and September 30, 2021, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2021 and September 30, 2021 was $17.1 billion and $15.5 billion, respectively, secured by earnest money deposits of $1.3 billion and $1.1 billion, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2021 and September 30, 2021 included $1.5 billion and $1.6 billion, respectively, related to lot purchase contracts with Forestar, secured by $141.5 million and $151.0 million, respectively, of earnest money.

(3) Lots controlled at December 31, 2021 included approximately 38,300 lots owned or controlled by Forestar, 20,000 of which our homebuilding divisions have under contract to purchase and 18,300 of which our homebuilding divisions have a right of first offer to purchase.

Of these, approximately 16,700 lots were in our Southeast region, 6,900 lots were in our East region, 5,700 lots were in our Southwest, 4,300 lots were in our South Central region, 3,400 lots were in our North region and 1,300 lots were in our Northwest region.

Lots controlled at September 30, 2021 included approximately 39,200 lots owned or controlled by Forestar, 21,000 of which our homebuilding divisions had under contract to purchase and 18,200 of which our homebuilding divisions had a right of first offer to purchase.

(4) Approximately 15,400 and 14,900 of our homes in inventory were unsold at June 30, 2021 and September 30, 2020, respectively.

At June 30, 2021, approximately 500 of our unsold homes were completed, of which approximately 100 homes had been completed for more than six months.

(4) Approximately 25,600 and 21,700 of our homes in inventory were unsold at December 31, 2021 and September 30, 2021, respectively.

At December 31, 2021, approximately 1,000 of our unsold homes were completed, of which approximately 100 homes had been completed for more than six months.

At September 30, 2021, approximately 900 of our unsold homes were completed, of which approximately 100 homes had been completed for more than six months.

Homes in inventory exclude 1,300 and 600 homes related to our single-family rental operations at June 30, 2021 and September 30, 2020, respectively, and also exclude approximately 1,800 model homes at both dates.

Homes in inventory exclude approximately 1,800 model homes at both December 31, 2021 and September 30, 2021.

RESULTS OF OPERATIONS – FORESTAR

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at June 30, 2021, we owned 64% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 55 markets across 22 states as of June 30, 2021.

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at December 31, 2021, we owned 63% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 55 markets across 23 states as of December 31, 2021.

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

(See Note B for additional Forestar segment information.)

Results of operations for the Forestar segment for the three and nine months ended June 30, 2021 and 2020 were as follows:

(See Note B to the accompanying financial statements for additional Forestar segment information.)

Results of operations for the Forestar segment for 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)

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Selling, general and administrative expense 21.5 15.5

Gain on sale of assets — — — (0.1)

Loss on extinguishment of debt 18.1 — 18.1 —

Other (income) expense (1.6) (0.5)

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Residential land and lot sales primarily consist of the sale of single-family lots to local, regional and national homebuilders.

During the three and nine months ended June 30, 2021 and 2020, Forestar’s land and lot sales, including the portion sold to D.R.

During the three months ended December 31, 2021 and 2020, Forestar’s lot sales, including the portion sold to D.R.

Horton and the revenues generated from those sales, were as follows:

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

($ in millions)

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Horton $ 330.1 $ 294.2

Tract acres sold to D.R.

Horton 7 30 21 66

Tract sales revenues from sales to D.R.

Horton $ 3.0 $ 13.4 $ 6.0 $ 20.6

SG&A expense for the three and nine months ended June 30, 2021 included charges of $1.0 million and $2.9 million, respectively, related to the shared services agreement between Forestar and D.R.

SG&A expense for the three months ended December 31, 2021 and 2020 included charges of $1.0 million and $1.1 million, respectively, related to the shared services agreement between Forestar and D.R.

Horton whereby D.R.

Horton provides Forestar with certain administrative, compliance, operational and procurement services.

Shared services charges were $1.2 million and $3.8 million, respectively, in the same periods of fiscal 2020.

Loss on extinguishment of debt of $18.1 million in the three and nine months ended June 30, 2021 was due to Forestar’s redemption of its $350 million principal amount of 8.0% senior notes due 2024 in May 2021.

At June 30, 2021, Forestar owned directly or controlled through land and lot purchase contracts approximately 96,600 residential lots, of which approximately 4,400 are fully developed.

At December 31, 2021, Forestar owned directly or controlled through land and lot purchase contracts approximately 103,300 residential lots, of which 4,900 are fully developed.

Approximately 38,300 of these lots are under contract to sell to D.R.

Horton or subject to a right of first offer under the master supply agreement with D.R.

Approximately 900 of these lots are under contract to sell to other builders.

Horton, and 1,000 of these lots are under contract to sell to other builders.

RESULTS OF OPERATIONS – FINANCIAL SERVICES

The following tables and related discussion set forth key operating and financial data for our financial services operations, comprising DHI Mortgage and our subsidiary title companies, for the three and nine months ended June 30, 2021 and 2020.

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 % Change 2021 2020 % Change

Three Months Ended December 31,

2021 2020 % Change

Number of first-lien loans originated or brokered by DHI Mortgage for D.R.

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Loans sold by DHI Mortgage to third parties 13,071 13,458 (3) %

Three Months Ended June 30, Nine Months Ended June 30,

2021 2020 % Change 2021 2020 % Change

Three Months Ended December 31,

2021 2020 % Change

(In millions)

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Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

General and administrative expense 68.0 % 58.5 %

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The volume of loans originated by our mortgage operations is directly related to the number of homes closed by our homebuilding operations.

In the three and nine months ended June 30, 2021, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 15% and 31%, respectively, from the prior year periods, due to increases in the number of homes closed by our homebuilding operations of 22% and 33%.

Homes closed by our homebuilding operations constituted 98% of DHI Mortgage loan originations in both the three and nine months ended June 30, 2021 compared to 97% in the prior year periods.

In the three months ended December 31, 2021, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers decreased 5% from the prior year period due to a decrease in the number of homes closed by our homebuilding operations and in the percentage of homes closed for which DHI Mortgage handled our homebuyers’ financing.

Homes closed by our homebuilding operations constituted 98% and 97% of DHI Mortgage loan originations in the three months ended December 31, 2021 and 2020, respectively.

These percentages reflect DHI Mortgage’s consistent focus on the captive business provided by our homebuilding operations.

The number of loans sold increased 21% and 36% in the three and nine months ended June 30, 2021, respectively, compared to the prior year periods.

Virtually all of the mortgage loans held for sale on June 30, 2021 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae).

During the nine months ended June 30, 2021, approximately 55% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae, and 37% were sold to two other major financial entities.

Changes in market conditions could result in a greater concentration of our mortgage sales in future periods to fewer financial entities and directly to Fannie Mae or Ginnie Mae, and we may need to make other adjustments to our mortgage operations.

The number of loans sold decreased 3% in the three months ended December 31, 2021 compared to the prior year period.

Virtually all of the mortgage loans held for sale on December 31, 2021 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae).

During the three months ended December 31, 2021, approximately 61% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 30% were sold to one other major financial entity.

Changes in market conditions could result in a greater concentration of our mortgage sales in future periods to fewer financial entities and directly to Fannie Mae, Freddie Mac or Ginnie Mae, and we may need to make other adjustments to our mortgage operations.

Financial Services Revenues and Expenses

Revenues from our mortgage operations increased 17% to $149.1 million and 70% to $491.9 million in the three and nine months ended June 30, 2021, respectively, from $127.7 million and $289.7 million in the prior year periods, primarily due to increases of 14% and 30% in loan originations.

In the nine month period, higher net gains achieved on the sale of loan originations in the secondary market also contributed to the increase.

Net gains on the sale of mortgage loan originations decreased in the third quarter due to competitive pricing pressures in the marketplace.

Revenues from our title operations increased 37% to $39.6 million and 47% to $109.2 million in the three and nine months ended June 30, 2021, respectively, from $28.9 million and $74.3 million in the prior year periods, primarily due to increases of 26% and 38% in escrow closings.

General and administrative (G&A) expense related to our financial services operations increased 35% to $127.0 million and 40% to $360.4 million in the three and nine months ended June 30, 2021, respectively, from $93.9 million and $257.7 million in the prior year periods.

The increases were primarily due to increases in employee related costs to support a higher volume of transactions.

Our financial services operations employed 2,755 and 1,979 people at June 30, 2021 and 2020, respectively.

As a percentage of financial services revenues, G&A expense was 67.3% and 60.0% in the three and nine months ended June 30, 2021, respectively, compared to 60.0% and 70.8% in the prior year periods.

Fluctuations in financial services G&A expense as a percentage of revenues can occur because some components of revenue fluctuate differently than loan volumes, and some expenses are not directly related to mortgage loan volume or to changes in the amount of revenue earned.

Revenues from our mortgage operations decreased 5% to $144.1 million in the three months ended December 31, 2021 from $152.4 million in the prior year period, primarily due to the decrease in mortgage loan originations.

Revenues from our title operations increased 16% to $40.2 million in the three months ended December 31, 2021 from $34.8 million in the prior year period, primarily due to an increase in the average premium collected on closing transactions.

General and administrative (G&A) expense related to our financial services operations increased 14% to $125.3 million in the three months ended December 31, 2021 from $109.5 million in the prior year period.

As a percentage of financial services revenues, G&A expense was 68.0% in the three months ended December 31, 2021 compared to 58.5% in the prior year period.

The increase was primarily due to an increase in the number of employees to support increased volume in the fourth quarter of fiscal 2021 and expected increased volume for the remainder of fiscal 2022.

Additionally, fluctuations in financial services G&A expense as a percentage of revenues can occur because some components of revenue fluctuate differently than loan volumes, and some expenses are not directly related to mortgage loan volume or to changes in the amount of revenue earned.

Our financial services operations employed 2,942 and 2,403 people at December 31, 2021 and 2020, respectively.

Other income, net of other expense, included in our financial services operations consists primarily of the interest income of our mortgage subsidiary.

As a result of the revenue increase from a higher volume of mortgage originations and escrow closings and better leverage of our G&A expenses, pre-tax income from our financial services operations increased 111% to $262.1 million in the nine months ended June 30, 2021 from $124.0 million in the prior year period.

As a result of the revenue decrease from a lower volume of mortgage originations and an increase in employee related G&A expenses, pre-tax income from our financial services operations decreased 20% to $67.1 million in the three months ended December 31, 2021 from $84.1 million in the prior year period.

RESULTS OF OPERATIONS - RENTAL

Our rental segment consists of multi-family and single-family rental operations.

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

We primarily focus on constructing garden style multi-family rental communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets.

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

Multi-family and single-family rental property sales are recognized as revenues, and rental income is recognized as other income.

Results of operations for the rental segment for the three months ended December 31, 2021 and 2020 were as follows:

Three Months Ended

(In millions)

Single-family rental $ 80.3 $ 31.8

Multi-family rental 76.2 —

Total revenues 156.5 31.8

Cost of sales

Single-family rental 36.4 17.8

Multi-family rental 36.4 —

Total cost of sales 72.8 17.8

Selling, general and administrative expense 18.5 9.3

Other (income) expense (4.9) (3.9)

Income before income taxes $ 70.1 $ 8.6

During the three months ended December 31, 2021, we sold one multi-family rental property for $76.2 million (350 total units).

There were no sales of multi-family rental properties during the prior year quarter.

During the three months ended December 31, 2021, we sold two single-family rental properties (225 total homes) for $80.3 million compared to one property sold (124 total homes) for $31.8 million in the prior year quarter.

At December 31, 2021, our rental property inventory of $1.2 billion included $519.2 million of inventory related to our multi-family rental operations and $641.9 million of inventory related to our single-family rental operations.

At December 31, 2021, we had 16 multi-family rental properties, consisting of 4,870 units, under active construction and one community, consisting of 130 units, that was substantially complete and in the lease-up phase.

At December 31, 2021, our single-family rental properties (74 total communities) included 4,800 homes and finished lots, of which 1,100 homes were completed, and 3,400 expected lots that were unimproved or under development.

At September 30, 2021, our rental property inventory of $840.9 million included $425.1 million of assets related to our multi-family rental operations and $415.8 million of assets related to our single-family rental operations.

At September 30, 2021, we had 15 multi-family rental properties, consisting of 4,340 units, under active construction and one community, consisting of 350 units, that was substantially complete and in the lease-up phase.

At September 30, 2021, our single-family rental properties (55 total communities) included 2,650 homes and finished lots, of which 865 homes were completed, and 3,200 expected lots that were unimproved or under development.

RESULTS OF OPERATIONS - OTHER BUSINESSES

The pre-tax income of all of our subsidiaries engaged in other business activities was $7.7 million and $10.1 million in the three and nine months ended June 30, 2021, respectively, compared to a pre-tax loss of $0.6 million and pre-tax income of $56.9 million in the prior year periods.

Income generated by our other businesses can vary significantly based on the timing of multi-family rental property sales.

There were no multi-family rental properties sold during the current year periods or in the prior year quarter.

There were two multi-family rental properties sold during the prior year nine month period for a total of $128.5 million with gains on sale totaling $59.4 million.

Our multi-family rental operations develop, construct, lease, own and sell multi-family residential properties that produce rental income.

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

After we complete construction and achieve a stabilized level of leased occupancy, the property is typically marketed for sale.

At June 30, 2021, we 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, of which 3,230 units were under active construction and 1,310 units were completed.

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

We conduct insurance-related operations, own non-residential real estate including ranch land and improvements and own and operate energy-related assets.

The pre-tax income of all of our subsidiaries engaged in other business activities was $10.7 million in the three months ended December 31, 2021 compared to $6.2 million in the prior year period.

RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes

Pre-tax income for the three and nine months ended June 30, 2021 was $1.4 billion and $3.6 billion, respectively, compared to $782.4 million and $1.9 billion in the prior year periods.

The increases were primarily due to increases in pre-tax income generated by our homebuilding operations as a result of higher revenues from increased home closings and an increase in home sales gross margin.

Our 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.

Our 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 our 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 our effective tax rate by 1.9% and 0.9%, respectively.

Our 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.

We have 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.

Pre-tax income for the three months ended December 31, 2021 was $1.5 billion compared to $1.0 billion in the prior year period.

The increase was primarily due to an increase in pre-tax income generated by our homebuilding operations as a result of higher revenues from increased average selling prices and an increase in home sales gross margin.

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

Our 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.

Our 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.

We have 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.

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

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Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to changes in economic and market conditions.

Currently, we are increasing our investments in homebuilding inventories and single-family and multi-family rental properties to expand our operations and grow our revenues and profitability, as well as considering opportunistic strategic investments as they arise.

We have continued to increase our investments in homebuilding inventories and single-family and multi-family rental properties to expand our operations and grow our revenues and profitability.

We are also returning capital to our shareholders through dividend payments and repurchases of our common stock.

We are maintaining higher homebuilding cash balances than in prior years to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

At June 30, 2021, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 24.2% compared to 26.6% at September 30, 2020 and 28.0% at June 30, 2020.

Our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 16.0% compared to 17.5% at September 30, 2020 and 18.4% at June 30, 2020.

Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 35%, and we expect it to remain significantly lower than 35% in the fourth quarter of fiscal 2021 and throughout fiscal 2022.

We are maintaining significant homebuilding cash balances to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

As of December 31, 2021, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $5.3 billion, with $1.8 billion payable within 12 months, including $1.3 billion outstanding under the mortgage repurchase facility.

At December 31, 2021, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 25.1% compared to 26.7% at September 30, 2021 and 25.3% at December 31, 2020.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 15.2% at December 31, 2021 compared to 12.9% at September 30, 2021 and 12.4% and December 31, 2020.

At December 31, 2021, our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 17.3% compared to 17.8% at September 30, 2021 and 17.3% at December 31, 2020.

Our net homebuilding debt to total capital (homebuilding notes payable net of cash divided by stockholders’ equity plus homebuilding notes payable net of cash) was 6.9% at December 31, 2021 compared to 1.7% at September 30, 2021 and 3.9% at December 31, 2020.

Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 30%, and we expect it to remain significantly lower than 30% throughout fiscal 2022.

We believe that the ratio of homebuilding debt to total capital is useful in understanding the leverage employed in our homebuilding operations and comparing our capital structure with other homebuilders.

We exclude the debt of Forestar and our financial services business because they are separately capitalized and not guaranteed by our parent company or any of our homebuilding entities.

At December 31, 2021, we had outstanding letters of credit of $253.5 million and surety bonds of $2.4 billion, issued by third parties to secure performance under various contracts.

We expect that our performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms.

When we complete our performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations.

We have no material third-party guarantees.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, pay dividends, repurchase our common stock and maintain sufficient cash levels to support our other operational needs, and we regularly evaluate our opportunities to raise additional capital.

Horton has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in August 2018, registering debt and equity securities that may be issued 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.

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

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 may be issued from time to time in amounts to be determined.

Forestar also 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.

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.

As market conditions permit, we may issue new debt or equity securities through the capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity.

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Capital Resources - Homebuilding

Cash and Cash Equivalents — At June 30, 2021, cash and cash equivalents of our homebuilding segment totaled $1.7 billion.

Bank Credit Facilities — In April 2021, our 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.

Cash and Cash Equivalents — At December 31, 2021, cash and cash equivalents of our homebuilding segment totaled $2.1 billion.

Bank Credit Facility — We have 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.

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The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or London Interbank Offered Rate (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.

Our $375 million 364-day senior unsecured homebuilding revolving credit facility was not renewed upon its maturity on May 27, 2021.

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.

Our homebuilding revolving credit facility imposes restrictions on our operations and activities, including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level.

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The credit agreement governing the facility imposes restrictions on the creation of secured debt and liens.

At June 30, 2021, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility.

Public Unsecured Debt — We have $2.55 billion principal amount of homebuilding senior notes outstanding as of June 30, 2021 that mature from September 2022 through October 2027.

In October 2020, we 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, we repaid $400 million principal amount of our 2.55% senior notes at maturity.

At December 31, 2021, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility.

Public Unsecured Debt — We have $3.15 billion principal amount of homebuilding senior notes outstanding as of December 31, 2021 that mature from September 2022 through October 2027.

The indentures governing our senior notes impose restrictions on the creation of secured debt and liens.

At June 30, 2021, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

Debt and Equity Repurchase Authorizations — In July 2019, our Board of Directors authorized the repurchase of up to $500 million of debt securities.

At December 31, 2021, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

Debt and Stock Repurchase Authorizations — In July 2019, our Board of Directors authorized the repurchase of up to $500 million of debt securities.

In April 2021, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock, replacing the prior authorization.

We repurchased 2.6 million shares of our 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, the full amount of the debt repurchase authorization was remaining and $758.8 million of the equity repurchase authorization was remaining.

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

At December 31, 2021, the full amount of the debt repurchase authorization was remaining, and $268.0 million of the stock repurchase authorization was remaining.

These authorizations have no expiration date.

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As market conditions permit, Forestar may issue new debt or equity securities through the capital markets or obtain additional bank financing to provide capital for future growth and additional liquidity.

At June 30, 2021, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 42.1% compared to 42.4% at September 30, 2020 and 43.1% at June 30, 2020.

Forestar’s ratio of net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 37.8% compared to 22.1% at September 30, 2020 and 25.2% at June 30, 2020.

Cash and Cash Equivalents — At June 30, 2021, Forestar had cash and cash equivalents of $116.0 million.

Bank Credit Facility — 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.

At December 31, 2021, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 40.0% compared to 41.0% at September 30, 2021 and 42.3% at December 31, 2020.

Forestar’s ratio of net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 33.9% compared to 35.2% at September 30, 2021 and 31.8% at December 31, 2020.

Cash and Cash Equivalents — At December 31, 2021, Forestar had cash and cash equivalents of $162.5 million.

Bank Credit Facility — 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.

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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.

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.

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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.

Unsecured Debt — As of June 30, 2021, Forestar had $700 million principal amount of senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, which represent unsecured obligations of Forestar.

These notes include $400 million principal amount of 3.85% senior notes issued in April 2021 that mature May 15, 2026 with interest payable semiannually.

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 during the current quarter upon redemption of the notes.

Forestar also has $300 million principal amount of 5.0% senior notes due 2028.

Unsecured Debt — As of December 31, 2021, Forestar had $700 million principal amount of senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, which represent unsecured obligations of Forestar.

These notes include $400 million principal amount of 3.85% senior notes that mature in May 2026 and $300 million principal amount of 5.0% senior notes that mature in March 2028.

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

or any of the subsidiaries that guarantee our 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.

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

All of the $30 million authorization was remaining at June 30, 2021, and the authorization has no expiration date.

Issuance of Common Stock — 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.

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.

Debt Repurchase Authorization — In April 2020, Forestar’s Board of Directors authorized the repurchase of up to $30 million of Forestar’s debt securities.

All of the $30 million authorization was remaining at December 31, 2021, and the authorization has no expiration date.

Issuance of Common Stock — 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.

Capital Resources - Financial Services

Cash and Cash Equivalents — At June 30, 2021, cash and cash equivalents of our financial services operations totaled $101.1 million.

Cash and Cash Equivalents — At December 31, 2021, cash and cash equivalents of our financial services operations totaled $88.2 million.

Mortgage Repurchase Facility — Our mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties upon receipt of funds from the counterparties.

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 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.

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.

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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.

In the past, DHI Mortgage has been able to renew or extend its mortgage credit facility at a sufficient capacity and on satisfactory terms prior to its maturity and obtain temporary additional commitments through amendments to the credit agreement during periods of higher than normal volumes of mortgages held for sale.

The liquidity of our financial services business depends upon its continued ability to renew and extend the mortgage repurchase facility or to obtain other additional financing in sufficient capacities.

Capital Resources - Rental

Cash and Cash Equivalents — At December 31, 2021, cash and cash equivalents of our rental operations segment totaled $44.2 million.

During fiscal 2021 and through the first quarter of fiscal 2022, we substantially increased the investment in our rental operations.

The inventory in our rental segment totaled $1.2 billion at December 31, 2021 compared to $840.9 million at September 30, 2021 and $385.6 million at December 31, 2020.

To date, we have funded our rental operations with capital from our homebuilding operations.

Our rental operations had no debt outstanding at December 31, 2021;

however, we are currently exploring bank debt financing to fund a portion of the expected future growth.

Over the longer term, as our rental operations continue to grow, we plan to evaluate additional capital sources to fund future growth opportunities.

Operating Cash Flow Activities

In the nine months ended June 30, 2021, net cash used in operating activities was $34.5 million compared to $588.9 million of cash provided by operating activities in the prior year period.

Cash used in operating activities in the current year period primarily consisted of $340.6 million and $58.2 million of cash used in our Forestar segment and other businesses, respectively, partially offset by $276.1 million and $96.2 million of cash provided by our homebuilding and financial services segments, respectively.

In the three months ended December 31, 2021, net cash used in operating activities was $174.1 million compared to $252.1 million in the prior year period.

Cash used in operating activities in the current year period primarily consisted of $255.9 million and $114.7 million of cash used in our rental and homebuilding segments, respectively, partially offset by $247.5 million and $5.8 million of cash provided by our financial services and Forestar segments.

The most significant source of cash provided by operating activities in both periods was net income.

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In both periods, the expenditures were made to increase our homes in inventory in response to the strength of homebuyer demand.

Cash used to increase residential land and lots in the current year period was $1.3 billion compared to $361.9 million in the prior year period.

Cash used to increase residential land and lots was $340.7 million in the current year period compared to $716.8 million in the prior year period.

Of these amounts, $55.5 million and $218.5 million, respectively, related to Forestar.

During the three months ended June 30, 2021, we increased our single-family and multi-family rental properties by $196.0 million, which is reflected as cash used in operating activities.

During the six month period ended March 31, 2021 and in the prior year nine month period ended June 30, 2020, expenditures related to rental properties were $173.9 million and $153.6 million, respectively, and are reflected as cash used in investing activities.

During the three months ended December 31, 2021, we increased our single-family and multi-family rental properties by $319.5 million, which is reflected as cash used in operating activities.

Prior to the change in presentation of rental operations, as discussed in Note A to the accompanying financial statements, cash activities related to rental properties were presented as investing activities.

During the three month period ended December 31, 2020, expenditures related to rental properties were $86.2 million and are reflected as cash used in investing activities.

Investing Cash Flow Activities

In the nine months ended June 30, 2021, net cash used in investing activities was $206.9 million compared to $100.4 million in the prior year period.

In the current year period, uses of cash included expenditures related to our rental operations totaling $173.9 million, purchases of property and equipment totaling $46.0 million and the acquisition of the homebuilding operations of Braselton Homes for $23.0 million, partially offset by proceeds from the sale of a single-family rental community for $31.8 million in the first quarter of fiscal 2021.

In the prior year period, uses of cash included expenditures related to our rental operations totaling $153.6 million and purchases of property and equipment totaling $66.8 million, partially offset by proceeds from the sale of assets, primarily consisting of $128.5 million related to the sale of two multi-family rental properties.

In the three months ended December 31, 2021, net cash used in investing activities was $26.5 million compared to $91.4 million in the prior year period.

In the current year period, uses of cash included purchases of property and equipment totaling $30.9 million.

In the prior year period, uses of cash included expenditures related to our rental operations totaling $86.2 million, the acquisition of the homebuilding operations of Braselton Homes for $23.0 million and purchases of property and equipment totaling $16.3 million, partially offset by proceeds from the sale of a single-family rental community for $31.8 million.

Financing Cash Flow Activities

We expect the short-term financing needs of our operations will be funded with existing cash, cash generated from operations and borrowings under our credit facilities.

Long-term financing needs for our homebuilding and Forestar operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets.

During the nine months ended June 30, 2021, net cash used in financing activities was $829.6 million, consisting primarily of repayment of $400 million principal amount of our 2.55% homebuilding senior notes at maturity, Forestar’s redemption of its $350 million principal amount of 8.0% senior notes, cash used to repurchase shares of our common stock of $661.4 million and payment of cash dividends totaling $217.7 million.

These uses of cash were partially offset by note proceeds from our issuance of $500 million principal amount of 1.4% homebuilding senior notes and Forestar’s issuance of $400 million principal amount of 3.85% senior notes.

During the nine months ended June 30, 2020, net cash provided by financing activities was $370.2 million, consisting primarily of note proceeds of $1.1 billion from draws on our homebuilding revolving credit facility, our issuance of $500 million principal amount of 2.5% homebuilding senior notes, our issuance of $500 million principal amount of 2.6% homebuilding senior notes, Forestar’s issuance of $300 million principal amount of 5.0% senior notes and net advances of $284.0 million on our mortgage repurchase facility.

Note proceeds were partially offset by repayment of amounts drawn on our homebuilding revolving credit facility totaling $1.1 billion, repayment of $500 million principal amount of our 4.0% senior notes at maturity, Forestar’s repayment of $118.9 million principal amount of its 3.75% convertible senior notes at maturity, cash used to repurchase shares of our common stock of $360.4 million and payment of cash dividends totaling $192.3 million.

During each of the first three quarters of fiscal 2021, our Board of Directors approved a quarterly cash dividend 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, our 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.

Long-term financing needs for our operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets.

During the three months ended December 31, 2021, net cash used in financing activities was $572.0 million, consisting primarily of cash used to repurchase shares of our common stock of $303.8 million, net payments of $234.6 million on our mortgage repurchase facility and payment of cash dividends totaling $80.1 million.

During the three months ended December 31, 2020, net cash used in financing activities was $221.7 million, consisting primarily of repayment of $400 million principal amount of our 2.55% homebuilding senior notes at maturity, net payments of $163.5 million on our mortgage repurchase facility, payment of cash dividends totaling $72.9 million and cash used to repurchase shares of our common stock of $53.8 million.

These uses of cash were partially offset by note proceeds from our issuance of $500 million principal amount of 1.4% homebuilding senior notes.

During the three months ended December 31, 2021, our 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, our 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.

The declaration of future cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, cash flows, capital requirements, financial condition and general business conditions.

CONTRACTUAL CASH OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Our primary contractual cash obligations are payments under our debt agreements and lease payments under operating leases.

We expect to fund our contractual obligations in the ordinary course of business through a combination of our existing cash resources, cash flows generated from profits, our credit facilities or other bank financing and the issuance of new debt or equity securities through the public capital markets as market conditions may permit.

At June 30, 2021, we had outstanding letters of credit of $219.5 million and surety bonds of $2.1 billion, issued by third parties to secure performance under various contracts.

When we complete our performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations.

We have no material third-party guarantees.

Our mortgage subsidiary enters into various commitments related to the lending activities of our mortgage operations.

Further discussion of these commitments is provided in Item 3 “Quantitative and Qualitative Disclosures About Market Risk” under Part I of this quarterly report on Form 10-Q.

We enter into land and lot purchase contracts to acquire land or lots for the construction of homes.

Lot purchase contracts enable us to control significant lot positions with limited capital investment.

Among our homebuilding land and lot purchase contracts at June 30, 2021, there were a limited number of contracts with $136.9 million of remaining purchase price subject to specific performance provisions that may require us to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

Of this amount, $67.8 million related to contracts between our homebuilding segment and Forestar.

Further information about our land purchase contracts is provided in the “Homebuilding Inventories, Land and Lot Position and Homes in Inventory” section included herein.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of June 30, 2021, D.R.

As of December 31, 2021, D.R.

had $3.15 billion principal amount of homebuilding senior notes outstanding due through October 2027 and no amounts outstanding on its homebuilding revolving credit facility.

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or (4) its ceasing to guarantee any of our publicly traded debt securities and ceasing to guarantee any of our obligations under our homebuilding revolving credit facility.

The enforceability of the obligations of the Guarantor Subsidiaries under their guarantees may be subject to review under applicable federal or state laws relating to fraudulent conveyance or transfer, voidable preference and similar laws affecting the rights of creditors generally.

In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of our guaranteed obligations.

The indentures governing our homebuilding senior notes contain a “savings clause,” which limits the liability of each Guarantor on its guarantee to the maximum amount that such Guarantor can incur without risk that its guarantee will be subject to avoidance as a fraudulent transfer.

This provision may not be effective to protect such guarantees from fraudulent transfer challenges or, if it does, it may reduce such Guarantor’s obligation such that the remaining amount due and collectible under the guarantees would not suffice, if necessary, to pay the notes in full when due.

The following tables present summarized financial information for D.R.

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and Guarantor Subsidiaries

Summarized Balance Sheet Data June 30,

Summarized Balance Sheet Data December 31,

2021 September 30,

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14,216.7 13,567.5

Summarized Statement of Operations Data Nine Months Ended

June 30, 2021 Year Ended

Summarized Statement of Operations Data Three Months Ended

December 31, 2021 Year Ended

September 30, 2021

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Net income 1,023.8 3,786.5

A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that:

(i) such guarantee was incurred with fraudulent intent;

or (ii) such Guarantor did not receive fair consideration or reasonably equivalent value for issuing its guarantee and was insolvent at the time of the guarantee, was rendered insolvent by reason of the guarantee, was engaged in a business or transaction for which its assets constituted unreasonably small capital to carry on its business, or intended to incur, or believed that it would incur, debt beyond its ability to pay such debt as it matured.

The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court.

Generally, however, a company would be considered insolvent for purposes of the foregoing if the sum of the company’s debts, including contingent, unliquidated and unmatured liabilities, is greater than all of such company’s property at a fair valuation, or if the present fair saleable value of the company’s assets is less than the amount that will be required to pay the probable liability on its existing debts as they become absolute and matured.

On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature.

We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

CRITICAL ACCOUNTING POLICIES

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As disclosed in our critical accounting policies in our Form 10-K for the fiscal year ended September 30, 2021, our reserves for construction defect claims include the estimated costs of both known claims and anticipated future claims.

At June 30, 2021 and September 30, 2020, we had reserves for approximately 350 and 260 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the nine months ended June 30, 2021, we established reserves for approximately 165 new construction defect claims and resolved 75 construction defect claims for a total cost of $13.3 million.

At June 30, 2020 and September 30, 2019, we had reserves for approximately 240 and 180 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the nine months ended June 30, 2020, we established reserves for approximately 120 new construction defect claims and resolved 60 construction defect claims for a total cost of $20.6 million.

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

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

At December 31, 2021 and September 30, 2021, we had reserves for approximately 410 and 380 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the three months ended December 31, 2021, we established reserves for approximately 70 new construction defect claims and resolved 40 construction defect claims for a total cost of $4.3 million.

At December 31, 2020 and September 30, 2020, we had reserves for approximately 270 and 260 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the three months ended December 31, 2020, we established reserves for approximately 30 new construction defect claims and resolved 20 construction defect claims for a total cost of $2.3 million.

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

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

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

Forward-Looking Statements

Some of the statements contained in this report, as well as in other materials we have filed or will file with the SEC, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.

Some of the statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management.

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These risks, uncertainties and other factors include, but are not limited to:

• the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our businesses;

• the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions;

• the cyclical nature of the homebuilding, lot development and rental housing industries and changes in economic, real estate or other conditions;

• constriction of the credit and public capital markets, which could limit our ability to access capital and increase our costs of capital;

• reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates;

• the risks associated with our land and lot inventory;

• the risks associated with our land, lot and rental inventory;

• our ability to effect our growth strategies, acquisitions or investments successfully;

• the impact of an inflationary, deflationary or higher interest rate environment;

• supply shortages and other risks of acquiring land, building materials and skilled labor;

• the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our businesses;

• the effects of weather conditions and natural disasters on our business and financial results;

• home warranty and construction defect claims;

• the effects of health and safety incidents;

• supply shortages and other risks of acquiring land, building materials and skilled labor;

• reductions in the availability of performance bonds;

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• the effects of governmental regulations on our financial services operations;

• competitive conditions within the homebuilding, lot development and financial services industries;

• competitive conditions within the industries in which we operate;

• our ability to manage and service our debt and comply with related debt covenants, restrictions and limitations;

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• the effects of the loss of key personnel;

• actions by activist stockholders;

• information technology failures, data security breaches and our ability to satisfy privacy and data protection laws and regulations.

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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 2. Management’s Discussion and Analysis