What changed in this filing

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Item 1. Financial Statements

2022-07-22 compared with 2022-04-27 · 170 added, 124 removed, 686 unchanged (30% of the section changed)

15 unchanged sentences

Deferred income taxes, net of valuation allowance of $ 20.3 million and $ 4.2 million

at March 31, 2022 and September 30, 2021, respectively

at June 30, 2022 and September 30, 2021, respectively

Property and equipment, net 481.3 392.9

9 unchanged sentences

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 399,040,704 shares issued

and 351,955,435 shares outstanding at March 31, 2022 and 397,190,100 shares issued

and 347,377,037 shares outstanding at June 30, 2022 and 397,190,100 shares issued

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

1 unchanged sentence

Retained earnings 17,631.6 13,644.3

Treasury stock, 46,984,494 shares and 41,174,257 shares at March 31, 2022

Treasury stock, 51,663,667 shares and 41,174,257 shares at June 30, 2022

and September 30, 2021, respectively, at cost

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

4 unchanged sentences

Gain on sale of assets — — — ( 14.0 )

Loss on extinguishment of debt — 18.1 — 18.1

Other (income) expense ( 15.1 ) ( 17.4 ) ( 39.8 ) ( 28.2 )

50 unchanged sentences

$ 4.0 $ 3,288.7 $ 16,063.0 $ ( 2,580.8 ) $ 342.9 $ 17,117.8

Net income — — 1,647.8 — 11.5 1,659.3

Exercise of stock options ( 25,725 shares)

— 0.6 — — — 0.6

Stock issued under employee benefit plans ( 75,050 shares)

— 4.1 — — — 4.1

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

Stock-based compensation expense — 24.8 — — — 24.8

Cash dividends declared ($ 0.225 per share)

— — ( 79.2 ) — — ( 79.2 )

Repurchases of common stock ( 4,679,173 shares)

— — — ( 310.0 ) — ( 310.0 )

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

Noncontrolling interest acquired — — — — 18.2 18.2

Balances at June 30, 2022 ( 347,377,037 shares)

$ 4.0 $ 3,317.7 $ 17,631.6 $ ( 2,890.8 ) $ 373.0 $ 18,435.5

See accompanying notes to consolidated financial statements.

38 unchanged sentences

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

Net income — — 1,115.5 — 1.0 1,116.5

Exercise of stock options ( 152,119 shares)

— 1.4 — — — 1.4

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

— 8.5 — — — 8.5

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

Stock-based compensation expense — 22.6 — — — 22.6

Cash dividends declared ($ 0.20 per share)

— — ( 72.1 ) — — ( 72.1 )

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

— — — ( 241.2 ) — ( 241.2 )

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

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

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31,

Nine Months Ended June 30,

(In millions)

7 unchanged sentences

Gain on sale of assets — ( 14.0 )

Loss on extinguishment of debt — 18.1

Changes in operating assets and liabilities:

12 unchanged sentences

Expenditures related to rental properties — ( 173.9 )

Payments related to business acquisitions — ( 24.2 )

Payments related to business acquisitions, net of cash acquired ( 271.5 ) ( 24.4 )

Other investing activities 6.6 ( 0.2 )

3 unchanged sentences

Repayment of notes payable ( 2,051.2 ) ( 792.8 )

Advances on mortgage repurchase facility, net 84.3 70.9

Payments on mortgage repurchase facility, net ( 88.9 ) ( 39.0 )

Proceeds from stock associated with certain employee benefit plans 26.9 15.5

12 unchanged sentences

Stock issued under employee incentive plans $ 130.0 $ 124.7

Repurchase of common stock not settled $ 20.1 $ —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2022

June 30, 2022

NOTE A – BASIS OF PRESENTATION

2 unchanged sentences

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

As of March 31, 2022, the Company owns a 63 % controlling interest in Forestar Group Inc.

As of June 30, 2022, the Company owns a 63 % controlling interest in Forestar Group Inc.

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

12 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

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

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

AND SUBSIDIARIES

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

June 30, 2022

Business Acquisition

In April 2022, the Company and Vidler Water Resources, Inc.

(Vidler) entered into a definitive merger agreement pursuant to which the Company would acquire all of the outstanding shares of Vidler for $ 15.75 per share in an all-cash transaction.

Under the terms of the merger agreement, in May 2022, the Company completed a tender offer and acquired all of the outstanding shares for a total purchase price of $ 290.5 million.

The Company’s preliminary allocation of the purchase price to the assets, liabilities and noncontrolling interest acquired is as follows (in millions):

Cash and cash equivalents $ 19.0

Property and equipment 30.1

Deferred income taxes, net of valuation allowance of $ 16.4 million

Intangible and other assets (1)

Total assets 316.4

Other liabilities 7.7

Total liabilities 7.7

Noncontrolling interest 18.2

Net assets acquired $ 290.5

_____________________________________

(1) Intangible and other assets consist primarily of water rights and are included in other assets in the Company’s consolidated financial statements.

The purchase price allocation presented above is preliminary and is subject to revision as additional information becomes available and more detailed analyses are completed.

The Company expects the allocation to be finalized during the fourth quarter of fiscal 2022.

Pending Accounting Standards

4 unchanged sentences

The Company will adopt these standards when LIBOR is discontinued and does not expect them to have a material impact on its consolidated financial statements or related disclosures.

AND SUBSIDIARIES

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

March 31, 2022

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

4 unchanged sentences

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

March 31, 2022

June 30, 2022

NOTE B – SEGMENT INFORMATION

4 unchanged sentences

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

Segment information for the three and six months ended March 31, 2021 has been reclassified to conform to the current presentation.

Segment information for the three and nine months ended June 30, 2021 has been reclassified to conform to the current presentation.

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

2 unchanged sentences

South Central:

Oklahoma and Texas

Arkansas, Oklahoma and Texas

Alabama, Florida, Louisiana and Mississippi

6 unchanged sentences

The Forestar segment is a residential lot development company with operations in 52 markets across 22 states.

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

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

The Company’s homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies.

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

5 unchanged sentences

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

March 31, 2022

June 30, 2022

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

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

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

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

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

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

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

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

1 unchanged sentence

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

March 31, 2022

June 30, 2022

The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2021.

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

March 31, 2022

June 30, 2022

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

28 unchanged sentences

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

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

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

AND SUBSIDIARIES

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

March 31, 2022

June 30, 2022

September 30, 2021

32 unchanged sentences

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

March 31, 2022

Three Months Ended March 31, 2022

June 30, 2022

Three Months Ended June 30, 2022

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

24 unchanged sentences

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

March 31, 2022

Six Months Ended March 31, 2022

June 30, 2022

Nine Months Ended June 30, 2022

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

29 unchanged sentences

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

March 31, 2022

Three Months Ended March 31, 2021

June 30, 2022

Three Months Ended June 30, 2021

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

2 unchanged sentences

Land/lot sales and other 7.1 312.9 — — ( 264.2 ) 55.8

Rental property sales — — — 23.1 ( 23.1 ) —

Financial services

4 unchanged sentences

Land/lot sales and other 2.7 256.4 — — ( 231.3 ) 27.8

Rental property sales — — — 11.7 ( 11.7 ) —

Inventory and land option charges

3 unchanged sentences

500.7 16.9 127.0 8.8 2.3 655.7

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 4.9 ) ( 0.3 ) ( 8.6 ) ( 7.3 ) 3.7 ( 17.4 )

7 unchanged sentences

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

March 31, 2022

Six Months Ended March 31, 2021

June 30, 2022

Nine Months Ended June 30, 2021

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

18 unchanged sentences

Gain on sale of assets — — — — ( 14.0 ) ( 14.0 )

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 8.7 ) ( 1.4 ) ( 21.4 ) ( 16.3 ) 19.6 ( 28.2 )

12 unchanged sentences

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

March 31, 2022

June 30, 2022

Homebuilding Inventories by Reporting Segment (1)

13 unchanged sentences

Homebuilding Results by Reporting Segment Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

17 unchanged sentences

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

March 31, 2022

June 30, 2022

NOTE C – INVENTORIES

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

As a result of this review, Forestar recorded a $ 3.8 million impairment charge related to one land development project during the three and six months ended March 31, 2022.

There were no impairment charges recorded in the prior year quarter and $ 5.6 million of impairment charges recorded in the six months ended March 31, 2021.

During the three and six months ended March 31, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 11.4 million and $ 16.2 million, respectively, compared to $ 3.8 million and $ 6.5 million in the same periods of fiscal 2021.

As of June 30, 2022, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended June 30, 2022.

During the nine months ended June 30, 2022, Forestar recorded a $ 3.8 million impairment charge related to one land development project.

There were no impairment charges recorded in the prior year quarter and $ 5.6 million of impairment charges recorded in the nine months ended June 30, 2021.

During the three and nine months ended June 30, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 10.6 million and $ 26.8 million, respectively, compared to $ 5.6 million and $ 12.0 million in the same periods of fiscal 2021.

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

1 unchanged sentence

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

March 31, 2022

June 30, 2022

NOTE D – NOTES PAYABLE

21 unchanged sentences

____________________________

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 14.3 million and $ 16.5 million at March 31, 2022 and September 30, 2021, respectively.

(2) Homebuilding other secured notes excludes $ 0.5 million and $ 0.7 million of earnest money notes payable to Forestar at March 31, 2022 and September 30, 2021, respectively.

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 13.3 million and $ 16.5 million at June 30, 2022 and September 30, 2021, respectively.

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

These intercompany notes are eliminated in consolidation.

(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 7.2 million and $ 8.0 million at March 31, 2022 and September 30, 2021, respectively.

(4) The fair value of notes payable at March 31, 2022 totaled $ 5.4 billion, of which $ 3.7 billion was measured using Level 2 inputs and $ 1.7 billion was measured using Level 3 inputs.

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

(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 6.9 million and $ 8.0 million at June 30, 2022 and September 30, 2021, respectively.

(4) The fair value of notes payable at June 30, 2022 totaled $ 5.7 billion, of which $ 3.5 billion were measured using Level 2 inputs and $ 2.2 billion were measured using Level 3 inputs.

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

AND SUBSIDIARIES

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

March 31, 2022

June 30, 2022

The Company has a $ 2.19 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 3.0 billion, subject to certain conditions and availability of additional bank commitments.

2 unchanged sentences

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

Borrowings and repayments under the facility totaled $ 750 million each during the six months ended March 31, 2022.

At March 31, 2022, there were no borrowings outstanding and $ 175.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 2.0 billion.

Borrowings and repayments under the facility totaled $ 2.5 billion and $ 2.1 billion, respectively, during the nine months ended June 30, 2022.

At June 30, 2022, there were $ 400 million of borrowings outstanding at a 4.8 % annual interest rate and $ 188.7 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.60 billion.

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

2 unchanged sentences

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

At March 31, 2022, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility and public debt obligations.

At June 30, 2022, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility and public debt obligations.

The Company’s homebuilding revolving credit facility is guaranteed by D.R.

3 unchanged sentences

The authorization has no expiration date.

All of the $ 500 million authorization was remaining at March 31, 2022.

All of the $ 500 million authorization was remaining at June 30, 2022.

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.

3 unchanged sentences

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

At March 31, 2022, there were no borrowings outstanding and $ 60.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 349.5 million.

At June 30, 2022, there were no borrowings outstanding and $ 56.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 354.0 million.

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

4 unchanged sentences

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

March 31, 2022

June 30, 2022

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

or any of the subsidiaries that guarantee the debt of the Company’s homebuilding, financial services or rental operations.

At March 31, 2022, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

At June 30, 2022, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

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

The authorization has no expiration date.

All of the $ 30 million authorization was remaining at March 31, 2022.

All of the $ 30 million authorization was remaining at June 30, 2022.

Financial Services

4 unchanged sentences

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 March 31, 2022 was $ 2.1 billion.

As of March 31, 2022, $ 2.2 billion of mortgage loans held for sale with a collateral value of $ 2.2 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 619.9 million, DHI Mortgage had an obligation of $ 1.6 billion outstanding under the mortgage repurchase facility at March 31, 2022 at a 1.9 % annual interest rate.

The total capacity of the facility at June 30, 2022 was $ 2.1 billion.

As of June 30, 2022, $ 2.1 billion of mortgage loans held for sale with a collateral value of $ 2.0 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 632.0 million, DHI Mortgage had an obligation of $ 1.4 billion outstanding under the mortgage repurchase facility at June 30, 2022 at a 3.3 % annual interest rate.

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

2 unchanged sentences

These covenants are measured and reported to the lenders monthly.

At March 31, 2022, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

At June 30, 2022, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

On March 4, 2022, the Company’s rental subsidiary, DRH Rental, entered into a $ 625 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 1.25 billion, subject to certain conditions and availability of additional bank commitments.

1 unchanged sentence

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 total revolving credit commitments.

Availability under the revolving credit facility is subject to a borrowing base calculation based on the book value of DRH Rental’s real estate assets and unrestricted cash.

At March 31, 2022, the borrowing base limited the available capacity under the facility to $ 486 million and there were no borrowings outstanding or letters of credit issued under the facility.

The maturity date of the facility is March 4, 2026.

Availability under the revolving credit facility is subject to a borrowing base calculation based on the book value of DRH Rental’s real estate assets and unrestricted cash.

At June 30, 2022, the borrowing base limited the available capacity under the facility to $ 649.6 million.

At June 30, 2022, there were $ 175 million of borrowings outstanding at a 3.1 % annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $ 474.6 million.

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

2 unchanged sentences

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

At March 31, 2022, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

At June 30, 2022, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

DRH Rental’s revolving credit facility is not guaranteed by D.R.

2 unchanged sentences

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

March 31, 2022

June 30, 2022

NOTE E – CAPITALIZED INTEREST

2 unchanged sentences

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

During the first six months of fiscal 2022 and fiscal 2021, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and six months ended March 31, 2022 and 2021:

During the first nine months of fiscal 2022 and fiscal 2021, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and nine months ended June 30, 2022 and 2021:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

5 unchanged sentences

__________________

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 3.0 million and $ 7.0 million in the three and six months ended March 31, 2022, respectively, and $ 3.8 million and $ 8.3 million in the same periods of fiscal 2021.

Also included in interest incurred is Forestar interest of $ 8.1 million and $ 16.2 million in the three and six months ended March 31, 2022, respectively, and $ 11.5 million and $ 23.0 million in the same periods of fiscal 2021.

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 4.0 million and $ 11.0 million in the three and nine months ended June 30, 2022, respectively, and $ 4.7 million and $ 13.0 million in the same periods of fiscal 2021.

Also included in interest incurred is Forestar interest of $ 8.1 million and $ 24.3 million in the three and nine months ended June 30, 2022, respectively, and $ 10.3 million and $ 33.3 million in the same periods of fiscal 2021.

AND SUBSIDIARIES

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

March 31, 2022

June 30, 2022

NOTE F – MORTGAGE LOANS

2 unchanged sentences

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

At March 31, 2022, mortgage loans held for sale of $ 2.24 billion had an aggregate outstanding principal balance of $ 2.27 billion.

At June 30, 2022, mortgage loans held for sale of $ 2.08 billion had an aggregate outstanding principal balance of $ 2.10 billion.

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

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

During the six months ended March 31, 2022 and 2021, mortgage loans originated totaled $ 8.4 billion and $ 7.3 billion, respectively, and mortgage loans sold totaled $ 8.1 billion and $ 7.0 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 168.0 million and $ 302.0 million during the three and six months ended March 31, 2022, respectively, compared to $ 178.6 million and $ 317.4 million in the prior year periods.

During the nine months ended June 30, 2022 and 2021, mortgage loans originated totaled $ 13.5 billion and $ 11.5 billion, respectively, and mortgage loans sold totaled $ 13.4 billion and $ 11.4 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 195.3 million and $ 497.3 million during the three and nine months ended June 30, 2022, respectively, compared to $ 135.4 million and $ 453.0 million in the prior year periods.

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

During the six months ended March 31, 2022, approximately 68 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 24 % were sold to one other major financial entity.

During the nine months ended June 30, 2022, approximately 67 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 24 % were sold to one other major financial entity.

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

At March 31, 2022 and September 30, 2021, the Company had mortgage-backed securities (MBS) totaling $ 784.2 million and $ 834.6 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded an asset of $ 9.8 million and $ 1.1 million, respectively, for the fair value of such MBS position.

At June 30, 2022 and September 30, 2021, the Company had mortgage-backed securities (MBS) totaling $ 2.0 billion and $ 834.6 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded a liability of $ 1.4 million and an asset of $ 1.1 million, respectively, for the fair value of such MBS position.

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

At March 31, 2022 and September 30, 2021, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 2 inputs, totaled $ 3.7 billion and $ 1.5 billion, respectively.

At June 30, 2022 and September 30, 2021, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 2 inputs, totaled $ 6.1 billion and $ 1.5 billion, respectively.

NOTE G – INCOME TAXES

The Company’s income tax expense for the three and six months ended March 31, 2022 was $ 441.0 million and $ 792.5 million, respectively, compared to $ 246.0 million and $ 485.1 million in the prior year periods.

The effective tax rate was 23.4 % for both the three and six months ended March 31, 2022 compared to 20.8 % and 21.9 %, respectively, 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.

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

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 135.7 million at March 31, 2022 compared to $ 159.5 million at September 30, 2021.

The Company has a valuation allowance of $ 4.0 million and $ 4.2 million at March 31, 2022 and September 30, 2021, respectively, related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized.

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

The Company’s income tax expense for the three and nine months ended June 30, 2022 was $ 524.0 million and $ 1.3 billion, respectively, compared to $ 299.1 million and $ 784.1 million in the prior year periods.

The effective tax rate was 24.0 % and 23.7 % for the three and nine months ended June 30, 2022, respectively, compared to 21.1 % and 21.6 % 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.

The effective tax rates for the three and nine months ended June 30, 2022 are higher than the prior year periods due to the expiration of the federal energy efficient homes tax credit for homes closed after December 31, 2021.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 177.7 million at June 30, 2022 compared to $ 159.5 million at September 30, 2021.

The Company has a valuation allowance of $ 20.3 million and $ 4.2 million at June 30, 2022 and September 30, 2021, respectively, related to deferred tax assets for net operating loss (NOL) and tax credit carryforwards that are more likely than not to expire before being realized.

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

Any reversal of the valuation allowance in future periods will impact the Company’s effective tax rate.

4 unchanged sentences

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

March 31, 2022

June 30, 2022

NOTE H – EARNINGS PER SHARE

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

12 unchanged sentences

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

In April 2021, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock.

During the six months ended March 31, 2022, the Company repurchased 5.8 million shares of its common stock for $ 544.2 million.

At March 31, 2022, there was $ 2.0 million remaining on the repurchase authorization.

In April 2022, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock, replacing the prior authorization.

In April 2022, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock, replacing the previous authorization.

The authorization has no expiration date.

During each of the first two quarters of fiscal 2022, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, the most recent of which was paid on February 25, 2022 to stockholders of record on February 17, 2022.

In April 2022, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, payable on May 18, 2022 to stockholders of record on May 9, 2022.

The Company repurchased 4.7 million shares of its common stock for $ 310.0 million during the current quarter for a total of 10.5 million shares repurchased for $ 854.2 million during the nine months ended June 30, 2022.

At June 30, 2022, there was $ 690.0 million remaining on the repurchase authorization.

During each of the first three quarters of fiscal 2022, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, the most recent of which was paid on May 18, 2022 to stockholders of record on May 9, 2022.

In July 2022, the Board of Directors approved a quarterly cash dividend of $ 0.225 per common share, payable on August 11, 2022 to stockholders of record on August 4, 2022.

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

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

During the six months ended March 31, 2022, Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

At March 31, 2022, $ 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.

During the nine months ended June 30, 2022, Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

At June 30, 2022, $ 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.

AND SUBSIDIARIES

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

March 31, 2022

June 30, 2022

NOTE J – EMPLOYEE BENEFIT PLANS

14 unchanged sentences

The grant date fair value of these equity awards was $ 80.58 per unit.

Compensation expense related to this grant was $ 4.1 million and $ 8.3 million in the three and six months ended March 31, 2022, respectively, based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the three months ended March 31, 2022, the Company granted approximately 1.2 million time-based RSUs to approximately 1,200 recipients, including executive officers, other key employees and non-management directors.

Compensation expense related to this grant was $ 3.5 million and $ 11.7 million in the three and nine months ended June 30, 2022, respectively, based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the nine months ended June 30, 2022, the Company granted approximately 1.2 million time-based RSUs to approximately 1,200 recipients, including executive officers, other key employees and non-management directors.

The weighted average grant date fair value of these equity awards was $ 74.96 per unit, and they vest annually in equal installments over periods of three to five years.

Compensation expense related to these grants was $ 8.5 million in both the three and six months ended March 31, 2022, which primarily related to expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 28.9 million and $ 50.9 million during the three and six months ended March 31, 2022, respectively, compared to $ 24.0 million and $ 45.2 million during the three and six months ended March 31, 2021.

Compensation expense related to these grants was $ 4.9 million and $ 13.4 million in the three and nine months ended June 30, 2022, respectively.

Compensation expense in the nine month period included $ 8.1 million of expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 23.4 million and $ 74.3 million during the three and nine months ended June 30, 2022, respectively, compared to $ 21.4 million and $ 66.6 million during the three and nine months ended June 30, 2021.

AND SUBSIDIARIES

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

March 31, 2022

June 30, 2022

NOTE K – COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

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

Changes in the Company’s warranty liability during the three and six months ended March 31, 2022 and 2021 were as follows:

Changes in the Company’s warranty liability during the three and nine months ended June 30, 2022 and 2021 were as follows:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

9 unchanged sentences

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

The estimated liabilities for these contingencies were $ 617.1 million and $ 577.5 million at March 31, 2022 and September 30, 2021, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 99 % of these reserves related to construction defect matters at both March 31, 2022 and September 30, 2021.

Expenses related to the Company’s legal contingencies were $ 44.1 million and $ 37.3 million in the six months ended March 31, 2022 and 2021, respectively.

Changes in the Company’s legal claims reserves during the six months ended March 31, 2022 and 2021 were as follows:

Six Months Ended

The estimated liabilities for these contingencies were $ 674.4 million and $ 577.5 million at June 30, 2022 and September 30, 2021, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 99 % of these reserves related to construction defect matters at both June 30, 2022 and September 30, 2021.

Expenses related to the Company’s legal contingencies were $ 90.7 million and $ 46.2 million in the nine months ended June 30, 2022 and 2021, respectively.

Changes in the Company’s legal claims reserves during the nine months ended June 30, 2022 and 2021 were as follows:

Nine Months Ended

(In millions)

5 unchanged sentences

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

March 31, 2022

June 30, 2022

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

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

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 112.0 million, $ 109.5 million and $ 90.5 million at March 31, 2022, September 30, 2021 and March 31, 2021, respectively, and are included in other assets in the consolidated balance sheets.

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 122.3 million, $ 109.5 million and $ 98.1 million at June 30, 2022, September 30, 2021 and June 30, 2021, respectively, and are included in other assets in the consolidated balance sheets.

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

6 unchanged sentences

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

At March 31, 2022, the Company had total deposits of $ 1.4 billion, consisting of cash deposits of $ 1.3 billion and promissory notes and surety bonds of $ 86.1 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 18.7 billion.

At June 30, 2022, the Company had total deposits of $ 1.6 billion, consisting of cash deposits of $ 1.5 billion and promissory notes and surety bonds of $ 88.0 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 20.2 billion.

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

Of these amounts, $ 144.9 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $ 1.5 billion.

A limited number of the homebuilding land and lot purchase contracts at March 31, 2022, representing $ 91.1 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

A limited number of the homebuilding land and lot purchase contracts at June 30, 2022, representing $ 97.2 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

Of the $ 97.2 million remaining purchase price subject to specific performance provisions, $ 66.2 million related to contracts between the homebuilding segment and Forestar.

During the three and six months ended March 31, 2022, Forestar reimbursed the homebuilding segment $ 2.7 million and $ 5.4 million, respectively, for previously paid earnest money and $ 16.2 million and $ 37.8 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2021, Forestar reimbursed the homebuilding segment $ 8.0 million and $ 24.2 million, respectively, for previously paid earnest money and $ 7.3 million and $ 28.2 million, respectively, for pre-acquisition and other due diligence costs.

During the three and nine months ended June 30, 2022, Forestar reimbursed the homebuilding segment $ 4.2 million and $ 9.6 million, respectively, for previously paid earnest money and $ 18.3 million and $ 56.1 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

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

Other Commitments

At March 31, 2022, the Company had outstanding surety bonds of $ 2.5 billion and letters of credit of $ 236.1 million to secure performance under various contracts.

At June 30, 2022, the Company had outstanding surety bonds of $ 2.7 billion and letters of credit of $ 244.7 million to secure performance under various contracts.

Of the total letters of credit, $ 188.7 million were issued under the homebuilding revolving credit facility and $ 56.0 million were issued under Forestar’s revolving credit facility.

1 unchanged sentence

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

March 31, 2022

June 30, 2022

NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

The Company’s other assets at March 31, 2022 and September 30, 2021 were as follows:

The Company’s other assets at June 30, 2022 and September 30, 2021 were as follows:

2022 September 30,

1 unchanged sentence

Earnest money and refundable deposits $ 1,630.8 $ 1,079.8

Intangible and other assets related to Vidler acquisition 247.7 —

Insurance receivables 122.3 109.5

8 unchanged sentences

$ 2,602.0 $ 1,560.6

The Company’s accrued expenses and other liabilities at March 31, 2022 and September 30, 2021 were as follows:

The Company’s accrued expenses and other liabilities at June 30, 2022 and September 30, 2021 were as follows:

2022 September 30,

14 unchanged sentences

$ 2,951.9 $ 2,210.3

AND SUBSIDIARIES

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

March 31, 2022

NOTE M – SUBSEQUENT EVENT

In April 2022, D.R.

Horton and Vidler Water Resources, Inc.

VWTR) (Vidler) entered into a definitive merger agreement pursuant to which D.R.

Horton will acquire Vidler for $ 15.75 per share in an all-cash transaction.

Upon successful completion of the tender offer and following completion of the merger, the common stock of Vidler will no longer be listed for trading on the Nasdaq Stock Market.

The total equity value of the transaction is approximately $ 291 million, and the transaction is expected to close during the second calendar quarter of 2022, subject to customary closing conditions.

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

What changed 10-Q

Item 1. Financial Statements