What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-22 compared with 2022-04-27 · 319 added, 321 removed, 571 unchanged (53% of the section changed)

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Our business operations consist of homebuilding, a majority-owned residential lot development company, financial services, rental 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 $370,300 during the six months ended March 31, 2022.

Approximately 91% of our home sales revenue in the six months ended March 31, 2022 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 homebuilding operations are our core business and primarily include the construction and sale of single-family homes with sales prices generally ranging from $200,000 to more than $1,000,000, with an average closing price of $377,800 during the nine months ended June 30, 2022.

Approximately 91% of our home sales revenue in the nine months ended June 30, 2022 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.

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.

At March 31, 2022, we owned 63% of the outstanding shares of Forestar Group Inc.

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

At June 30, 2022, 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.

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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 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.

We conduct insurance-related operations, own water rights and other water-related assets, 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.

During the six months ended March 31, 2022, the number of our net sales orders decreased 3%, while the value of those sales orders increased 18% compared to the prior year period.

Our number of homes closed decreased 1%, while our home sales revenues increased 19% compared to the prior year period.

During the nine months ended June 30, 2022, our number of homes closed decreased 1%, while our home sales revenues increased 19% compared to the prior year period.

Our consolidated revenues increased 21% to $23.8 billion compared to $19.7 billion in the prior year period.

Our pre-tax income was $3.4 billion in the six months ended March 31, 2022 compared to $2.2 billion in the prior year period, and our pre-tax operating margin was 22.5% compared to 17.9%.

Net income was $2.6 billion in the six months ended March 31, 2022 compared to $1.7 billion in the prior year period, and our diluted earnings per share was $7.20 compared to $4.67.

In the trailing twelve months ended March 31, 2022, our return on equity (ROE) was 34.0% compared to 27.1% in the prior year period, and our homebuilding return on inventory (ROI) was 40.3% compared to 31.1%.

Our pre-tax income was $5.6 billion in the nine months ended June 30, 2022 compared to $3.6 billion in the prior year period, and our pre-tax operating margin was 23.3% compared to 18.5%.

Net income was $4.2 billion in the nine months ended June 30, 2022 compared to $2.8 billion in the prior year period, and our diluted earnings per share was $11.85 compared to $7.73.

In the trailing twelve months ended June 30, 2022, our return on equity (ROE) was 35.1% compared to 29.5% in the prior year period, and our homebuilding return on inventory (ROI) was 41.7% compared to 34.9%.

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 the first half of fiscal 2022, demand for our homes remained strong despite increased inflationary pressures and increases in interest rates on mortgage loans.

We believe demand for our homes is supported by the limited supply of homes at affordable price points across most of our markets.

We are well-positioned to meet this demand with our affordable product offerings, lot supply and housing inventory.

However, multiple disruptions in the supply chain 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 in most of 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 77% of the lots owned and controlled at March 31, 2022 compared to 76% and 75% at September 30, 2021 and March 31, 2021, respectively.

During the first half of fiscal 2022 and for most of the third quarter, demand for our homes remained strong.

The supply of homes at affordable price points remains limited across most of our markets, and disruptions in the supply chains for certain building materials and tightness in the labor market have caused our construction cycle to lengthen.

In June 2022, we began to see a moderation in housing demand as mortgage interest rates increased substantially and inflationary pressures remained elevated.

Although these pressures may persist for some time, we believe we are well-positioned to meet these changing market conditions with our affordable product offerings and lot supply, and we will manage our homes in inventory based on the level of homebuyer demand.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 78% of the lots owned and controlled at June 30, 2022 compared to 76% at both September 30, 2021 and June 30, 2021.

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 .

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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 March 31, 2022, as compared to the same period of 2021, were as follows:

Key financial results as of and for the three months ended June 30, 2022, as compared to the same period of 2021, were as follows:

Homebuilding:

• Homebuilding revenues increased 18% to $8.3 billion compared to $7.0 billion.

• Homes closed increased 1% to 19,828 homes, and the average closing price of those homes increased 21% to $378,200.

• Homes closed decreased 1% to 21,308 homes, while the average closing price of those homes increased 20% to $391,200.

• Net sales orders decreased 7% to 16,693 homes, while the value of net sales orders increased 8% to $6.9 billion.

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• Homebuilding pre-tax income was 23.4% of homebuilding revenues compared to 18.8%.

• Homebuilding cash and cash equivalents totaled $1.2 billion compared to $3.0 billion and $1.9 billion at September 30, 2021 and March 31, 2021, respectively.

• Homebuilding inventories totaled $16.6 billion compared to $13.9 billion and $12.9 billion at September 30, 2021 and March 31, 2021, respectively.

• Homes in inventory totaled 59,800 compared to 47,800 and 46,100 at September 30, 2021 and March 31, 2021, respectively.

• Owned lots totaled 131,200 compared to 127,800 and 121,500 at September 30, 2021 and March 31, 2021, respectively.

Lots controlled through purchase contracts increased to 442,800 from 402,500 and 365,200 at September 30, 2021 and March 31, 2021, respectively.

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

• Homebuilding debt to total capital was 16.4% compared to 17.8% and 16.8% at September 30, 2021 and March 31, 2021, respectively.

Net homebuilding debt to total capital was 11.2% compared to 1.7% and 5.3% at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s revenues increased 47% to $421.6 million compared to $287.1 million.

• Homebuilding cash and cash equivalents totaled $1.2 billion compared to $3.0 billion and $1.7 billion at September 30, 2021 and June 30, 2021, respectively.

• Homebuilding inventories totaled $17.9 billion compared to $13.9 billion and $13.5 billion at September 30, 2021 and June 30, 2021, respectively.

• Homes in inventory totaled 56,400 compared to 47,800 and 47,300 at September 30, 2021 and June 30, 2021, respectively.

• Owned lots totaled 131,100 compared to 127,800 and 123,900 at September 30, 2021 and June 30, 2021, respectively.

Lots controlled through purchase contracts increased to 467,100 from 402,500 and 393,200 at September 30, 2021 and June 30, 2021, respectively.

• Homebuilding debt was $3.7 billion compared to $3.2 billion and $2.6 billion at September 30, 2021 and June 30, 2021, respectively.

• Homebuilding debt to total capital was 17.0% compared to 17.8% and 16.0% at September 30, 2021 and June 30, 2021, respectively.

Net homebuilding debt to total capital was 12.1% compared to 1.7% and 6.4% at September 30, 2021 and June 30, 2021, respectively.

• Forestar’s revenues decreased 1% to $308.5 million compared to $312.9 million.

Revenues in the current and prior year quarters included $258.1 million and $303.2 million, respectively, of revenue from land and lot sales to our homebuilding segment.

• Forestar’s lots sold increased 61% to 5,788 compared to 3,588.

• Forestar’s lots sold decreased 10% to 3,473 compared to 3,858.

Lots sold to D.R.

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• Forestar’s pre-tax income was 17.1% of revenues compared to 6.7%.

• Forestar’s cash and cash equivalents totaled $233.7 million compared to $153.6 million and $167.2 million at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s inventories totaled $2.0 billion compared to $1.9 billion and $1.7 billion at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s owned and controlled lots totaled 96,500 compared to 97,000 and 84,500 at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s cash and cash equivalents totaled $146.3 million compared to $153.6 million and $116.0 million at September 30, 2021 and June 30, 2021, respectively.

• Forestar’s inventories totaled $2.1 billion compared to $1.9 billion at both September 30, 2021 and June 30, 2021.

• Forestar’s owned and controlled lots totaled 97,000 at both June 30, 2022 and September 30, 2021 and 96,600 at June 30, 2021.

Of these lots, 38,400 were under contract to sell to or subject to a right of first offer with D.R.

Horton compared to 39,200 and 37,100 at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s debt was $705.3 million compared to $704.5 million and $654.6 million at September 30, 2021 and March 31, 2021, respectively.

• Forestar’s debt to total capital was 38.9% compared to 41.0% at both September 30, 2021 and March 31, 2021.

Forestar’s net debt to total capital was 29.9% compared to 35.2% and 34.1% at September 30, 2021 and March 31, 2021, respectively.

Horton compared to 39,200 and 39,400 at September 30, 2021 and June 30, 2021, respectively.

• Forestar’s debt was $705.6 million compared to $704.5 million and $704.1 million at September 30, 2021 and June 30, 2021, respectively.

• Forestar’s debt to total capital was 38.1% compared to 41.0% and 42.1% at September 30, 2021 and June 30, 2021, respectively.

Forestar’s net debt to total capital was 32.8% compared to 35.2% and 37.8% at September 30, 2021 and June 30, 2021, respectively.

Financial Services:

• Financial services revenues decreased 1% to $222.1 million compared to $225.1 million.

• Financial services pre-tax income decreased 14% to $92.8 million compared to $107.7 million.

• Financial services revenues increased 35% to $254.3 million compared to $188.7 million.

• Financial services pre-tax income increased 83% to $128.3 million compared to $70.3 million.

• Financial services pre-tax income was 50.5% of financial services revenues compared to 37.3%.

• Rental revenues were $222.9 million compared to no revenue in the prior year quarter.

• Rental pre-tax income was $102.5 million compared to a pre-tax loss of $6.4 million.

• Rental inventory totaled $1.5 billion compared to $840.9 million and $543.5 million at September 30, 2021 and March 31, 2021, respectively.

• Rental units closed totaled 494 compared to none closed in the prior year quarter.

• Rental revenues were $109.7 million compared to $23.1 million.

• Rental pre-tax income was $42.6 million compared to $9.9 million.

• Rental inventory totaled $2.0 billion compared to $840.9 million and $760.2 million at September 30, 2021 and June 30, 2021, respectively.

• Single-family rental homes and multi-family rental units closed totaled 382 compared to 69.

Consolidated Results:

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• Net income attributable to D.R.

Horton increased 55% to $1.4 billion compared to $929.5 million.

Horton increased 48% to $1.6 billion compared to $1.1 billion.

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

Horton increased 53% to $4.67 compared to $3.06.

• Stockholders’ equity was $16.8 billion compared to $14.9 billion and $13.0 billion at September 30, 2021 and March 31, 2021, respectively.

• Book value per common share increased to $47.66 compared to $41.81 and $35.96 at September 30, 2021 and March 31, 2021, respectively.

• Debt to total capital was 24.9% compared to 26.7% and 25.7% at September 30, 2021 and March 31, 2021, respectively.

Net debt to total capital was 18.9% compared to 12.9% and 14.9% at September 30, 2021 and March 31, 2021, respectively.

Key financial results for the six months ended March 31, 2022, as compared to the same period of 2021, were as follows:

• Stockholders’ equity was $18.1 billion compared to $14.9 billion and $13.8 billion at September 30, 2021 and June 30, 2021, respectively.

• Book value per common share increased to $52.00 compared to $41.81 and $38.54 at September 30, 2021 and June 30, 2021, respectively.

• Debt to total capital was 24.9% compared to 26.7% and 24.2% at September 30, 2021 and June 30, 2021, respectively.

Net debt to total capital was 19.3% compared to 12.9% and 15.2% at September 30, 2021 and June 30, 2021, respectively.

Key financial results for the nine months ended June 30, 2022, as compared to the same period of 2021, were as follows:

Homebuilding:

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• Homebuilding pre-tax income was 21.9% of homebuilding revenues compared to 17.4%.

• Net cash used by homebuilding operations was $416.2 million compared to net cash provided by homebuilding operations of $190.5 million.

• Forestar’s revenues increased 40% to $829.2 million compared to $594.2 million.

• Net cash provided by homebuilding operations was $124.5 million compared to $450.7 million.

• Forestar’s revenues increased 25% to $1.1 billion compared to $907.1 million.

Revenues in the current and prior year periods included $977.8 million and $865.8 million, respectively, of revenue from land and lot sales to our homebuilding segment.

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Financial Services:

• Financial services revenues decreased 1% to $406.4 million compared to $412.3 million.

• Financial services pre-tax income decreased 17% to $159.9 million compared to $191.8 million.

• Financial services pre-tax income was 39.3% of financial services revenues compared to 46.5%.

• Financial services revenues increased 10% to $660.8 million compared to $601.1 million.

• Financial services pre-tax income increased 10% to $288.2 million compared to $262.1 million.

• Financial services pre-tax income was 43.6% of financial services revenues in both periods.

• Rental revenues were $489.1 million compared to $54.9 million.

• Rental pre-tax income was $215.1 million compared to $12.0 million.

• Rental units closed totaled 1,071 compared to 124.

• Single-family rental homes and multi-family rental units closed totaled 1,453 compared to 193.

Consolidated Results:

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• Consolidated pre-tax income was 23.3% of consolidated revenues compared to 18.5%.

• Income tax expense was $792.5 million compared to $485.1 million, and our effective tax rate was 23.4% compared to 21.9%.

• Income tax expense was $1.3 billion compared to $784.1 million, and our effective tax rate was 23.7% compared to 21.6%.

• Net income attributable to D.R.

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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 most of these markets.

We conduct our homebuilding operations in the geographic regions, states and markets listed below.

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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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 Central Washington Houston

Seattle/Tacoma/Everett/Olympia Killeen/Temple/Waco

Spokane Lubbock

Vancouver Midland/Odessa

New Braunfels/San Marcos

Southwest Region San Antonio

Arizona Phoenix

Tucson East Region

California Bakersfield Georgia Atlanta

Bay Area Augusta

Fresno/Tulare Savannah

Los Angeles County North Carolina Asheville

Modesto/Merced/Stockton Charlotte

Riverside County Greensboro/Winston-Salem

Sacramento New Bern/Greenville

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

Colorado Colorado Springs Arkansas Northwest Arkansas

Denver Oklahoma Oklahoma City

Fort Collins Tulsa

Oregon Bend Texas Austin

Eugene/Springfield Beaumont

Portland/Salem Bryan/College Station

Utah Salt Lake City Corpus Christi

George Dallas

Washington Central Washington Fort Worth

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 New Bern/Greenville

San Diego County Raleigh/Durham

Hawaii Oahu Wilmington

Nevada Las Vegas South Carolina Charleston

Reno Columbia

New Mexico Albuquerque Greenville/Spartanburg

Southeast Region Myrtle Beach

Alabama Birmingham Tennessee Chattanooga

Huntsville Knoxville

Mobile/Baldwin County Memphis

Montgomery Nashville

Florida Fort Myers/Naples North Region

Gainesville Delaware Central Delaware

Jacksonville Northern Delaware

Lakeland Illinois Chicago

Melbourne/Vero Beach Indiana Fort Wayne

Miami/Fort Lauderdale Indianapolis

Ocala Northwest Indiana

Orlando Iowa Des Moines

Pensacola/Panama City Iowa City/Cedar Rapids

Lucie Kentucky Louisville

Tallahassee Maryland Baltimore

Tampa/Sarasota Suburban Washington, D.C.

Volusia County Western Maryland

West Palm Beach Minnesota Minneapolis/St.

Louisiana Baton Rouge Nebraska Omaha

Lake Charles/Lafayette New Jersey Northern New Jersey

Mississippi Gulf Coast Southern New Jersey

Ohio Cincinnati

Pennsylvania Central Pennsylvania

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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 and six months ended March 31, 2022 and 2021.

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, 2022 and 2021.

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 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.

Net Sales Orders (1)

Three Months Ended March 31,

Three Months Ended June 30,

Net Homes Sold Value (In millions) Average Selling Price

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16,693 17,952 (7) % $ 6,940.7 $ 6,448.9 8 % $ 415,800 $ 359,200 16 %

Six Months Ended March 31,

Nine Months Ended June 30,

Net Homes Sold Value (In millions) Average Selling Price

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Sales Order Cancellations

Three Months Ended March 31,

Three Months Ended June 30,

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

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5,151 3,712 $ 1,976.9 $ 1,199.6 24 % 17 %

Six Months Ended March 31,

Nine Months Ended June 30,

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

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Net Sales Orders

The number of net sales orders decreased 10% and 3% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods.

The value of net sales orders increased 10% to $9.7 billion (24,340 homes) and 18% to $18.0 billion (45,862 homes) for the three and six months ended March 31, 2022, respectively, compared to $8.8 billion (27,059 homes) and $15.3 billion (47,477 homes) in the prior year periods, due to the increase in our average selling price.

The average selling price of net sales orders during the three and six months ended March 31, 2022 was $400,600 and $392,600, respectively, up 23% and 22% from the prior year periods.

Demand for our homes during the first half of fiscal 2022 remained strong.

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.

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 number of net sales orders decreased 10% in the three months ended March 31, 2022 compared to the prior year period.

The number of net sales orders decreased 7% and 4% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods.

The value of net sales orders increased 8% to $6.9 billion (16,693 homes) and 15% to $24.9 billion (62,555 homes) for the three and nine months ended June 30, 2022, respectively, compared to $6.4 billion (17,952 homes) and $21.7 billion (65,429 homes) in the prior year periods, due to the increase in our average selling price.

The average selling price of net sales orders during the three and nine months ended June 30, 2022 was $415,800 and $398,800, respectively, up 16% and 20% from the prior year periods.

During the first half of fiscal 2022 and for most of the third quarter, demand for our homes remained strong.

We continued restricting our sales order pace during the third quarter in most of our communities to match our longer construction cycles, which have resulted from disruptions in the supply chains for certain building materials and tightness in the labor market.

In June 2022, we began to see a moderation in demand for our homes as mortgage interest rates increased substantially and inflationary pressures remained elevated.

Although these pressures may persist for some time, we believe we are well-positioned to meet these changing market conditions with our affordable product offerings.

The number of net sales orders decreased 7% in the three months ended June 30, 2022 compared to the prior year period.

In regions with a decrease in sales order volume, the markets contributing most to the decreases were:

the Seattle and Denver markets in the Northwest;

the Phoenix market in the Southwest;

the Fort Worth market in the South Central;

the Louisiana, Tampa and Orlando markets in the Southeast;

and the Charlotte, Greenville and Atlanta markets in the East.

The markets contributing most to the increase in sales order volume in the North were the Indianapolis, Ohio and Chicago markets.

The number of net sales orders decreased 3% in the six months ended March 31, 2022 compared to the prior year period.

the Seattle and Portland markets in the Northwest;

the California and Arizona markets in the Southwest;

the Austin market in the South Central;

and the Louisiana and Tampa markets in the Southeast.

In regions with an increase in sales order volume, the markets contributing most to the increases were:

the Myrtle Beach market in the East and the New Jersey and Minnesota markets in the North.

The number of net sales orders decreased 4% in the nine months ended June 30, 2022 compared to the prior year period.

In regions with a decrease in sales order volume, the markets contributing most to the decreases were:

the Arizona markets in the Southwest;

the Fort Worth market in the South Central;

the Louisiana and Orlando markets in the Southeast;

and the Atlanta and Charlotte markets in the East.

the Seattle and Denver markets in the Northwest;

the Arizona and California markets in the Southwest;

the Austin and Fort Worth markets in the South Central;

and the Louisiana, Tampa and Orlando markets in the Southeast.

In regions with an increase in sales order volume, the markets contributing most to the increases were:

the Portland and Salt Lake City markets in the Northwest and the Indianapolis, Chicago and Iowa markets in the North.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 16% in both the three and six months ended March 31, 2022 compared to 15% and 16% in the prior year periods.

the Myrtle Beach market in the East and the Indianapolis and Ohio markets in the North.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 24% and 18% in the three and nine months ended June 30, 2022, respectively, compared to 17% in both prior year periods.

The increase in our cancellation rate in the current quarter primarily reflects the moderation in demand we experienced in June 2022 as mortgage interest rates increased substantially and inflationary pressures remained elevated.

Sales Order Backlog

As of March 31,

As of June 30,

Homes in Backlog Value (In millions) Average Selling Price

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Homes Closed and Home Sales Revenue

Three Months Ended March 31,

Three Months Ended June 30,

Homes Closed Value (In millions) Average Selling Price

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21,308 21,588 (1) % $ 8,336.4 $ 7,040.1 18 % $ 391,200 $ 326,100 20 %

Six Months Ended March 31,

Nine Months Ended June 30,

Homes Closed Value (In millions) Average Selling Price

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Home Sales Revenue

Revenues from home sales increased 22% to $7.5 billion (19,828 homes closed) for the three months ended March 31, 2022 from $6.2 billion (19,701 homes closed) in the prior year period.

Revenues from home sales increased 19% to $14.2 billion (38,224 homes closed) for the six months ended March 31, 2022 from $11.9 billion (38,440 homes closed) in the prior year period.

Revenues from home sales increased 18% to $8.3 billion (21,308 homes closed) for the three months ended June 30, 2022 from $7.0 billion (21,588 homes closed) in the prior year period.

Revenues from home sales increased 19% to $22.5 billion (59,532 homes closed) for the nine months ended June 30, 2022 from $18.9 billion (60,028 homes closed) in the prior year period.

Although home closings in recent quarters have been negatively impacted by supply chain disruptions, home sales revenues increased in all of our regions due to an increase in average selling price.

The number of homes closed increased 1% in the three months ended March 31, 2022 compared to the prior year period.

The number of homes closed decreased 1% in the three months ended June 30, 2022 compared to the prior year period.

In regions with an increase in closings volume, the markets contributing most to the increases were:

the Phoenix market in the Southwest;

the Dallas and Houston markets in the South Central;

and the Chicago, Iowa and New Jersey markets in the North.

the Hawaii markets in the Southwest;

the Houston and Dallas markets in the South Central;

and the Ohio, Chicago and New Jersey markets in the North.

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

the Seattle market in the Northwest;

the Seattle and Denver markets in the Northwest;

the Orlando market in the Southeast;

and the Atlanta market in the East.

The number of homes closed decreased 1% in the six months ended March 31, 2022 compared to the prior year period.

and the Charlotte and Atlanta markets in the East.

The number of homes closed decreased 1% in the nine months ended June 30, 2022 compared to the prior year period.

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

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the Orlando market in the Southeast;

and the Atlanta market in the East.

and the Atlanta and Charlotte markets in the East.

In regions with an increase in closings volume, the markets contributing most to the increases were:

the Dallas and Fort Worth markets in the South Central and the Chicago and New Jersey markets in the North.

the Dallas and Houston markets in the South Central and the Chicago and New Jersey markets in the North.

Homebuilding Operating Margin Analysis

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

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Home Sales Gross Profit

Gross profit from home sales increased to $2.2 billion in the three months ended March 31, 2022 from $1.5 billion in the prior year period and increased 430 basis points to 28.9% as a percentage of home sales revenues.

Gross profit from home sales increased to $2.5 billion in the three months ended June 30, 2022 from $1.8 billion in the prior year period and increased 420 basis points to 30.1% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 460 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes and 10 basis points due to a decrease in the amortization of capitalized interest, partially offset by increased warranty and construction defect costs of 50 basis points.

Gross profit from home sales increased to $4.0 billion in the six months ended March 31, 2022 from $2.9 billion in the prior year period and increased 380 basis points to 28.2% as a percentage of home sales revenues.

Gross profit from home sales increased to $6.5 billion in the nine months ended June 30, 2022 from $4.7 billion in the prior year period and increased 400 basis points to 28.9% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 400 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes and 20 basis points due to a decrease in the amortization of capitalized interest, partially offset by increased warranty and construction defect costs of 20 basis points.

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.

These actions could cause our gross profit margins to fluctuate in future periods.

If new home demand declines from current levels, we would expect our gross profit margins to also decline.

As we adjust to current market conditions, we expect the pace of sales price increases to slow and our incentive levels to increase from historical lows which would cause our gross profit margins in future periods to decline.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $7.6 million and $30.5 million in the three and six months ended March 31, 2022, respectively, and $15.4 million and $33.3 million in the comparable periods of fiscal 2021.

Land/lot sales and other revenues from our homebuilding operations were $11.4 million and $42.0 million in the three and nine months ended June 30, 2022, respectively, and $7.1 million and $40.5 million in the comparable periods of fiscal 2021.

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 March 31, 2022, our homebuilding operations had $21.6 million of land held for sale that we expect to sell in the next twelve months.

As of June 30, 2022, our homebuilding operations had $32.7 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 a result of this review, there were no impairments recorded in our homebuilding segment 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 our homebuilding segment in the six months ended March 31, 2021.

As a result of this review, there were no impairments recorded in our homebuilding segment during the three and nine months ended June 30, 2022.

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

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.

If the housing market or economic conditions are adversely affected for a prolonged period, we may be required to evaluate additional communities for potential impairment.

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

During the three and six months ended March 31, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $9.8 million and $13.7 million, respectively, compared to $3.2 million and $5.6 million in the same periods of fiscal 2021.

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

During the three and nine months ended June 30, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $9.5 million and $23.2 million, respectively, compared to $4.9 million and $10.4 million in the same periods of fiscal 2021.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 8% to $507.3 million and 10% to $1.0 billion in the three and six months ended March 31, 2022, respectively, from $467.6 million and $917.0 million in the prior year periods.

SG&A expense as a percentage of homebuilding revenues was 6.8% and 7.1% in the three and six months ended March 31, 2022, respectively, compared to 7.6% and 7.7% in the prior year periods.

Employee compensation and related costs were $420.4 million and $830.1 million in the three and six months ended March 31, 2022, respectively, compared to $382.3 million and $738.3 million in the same periods of fiscal 2021.

Employee compensation and related costs represented 83% of SG&A costs in both the three and six months ended March 31, 2022 compared to 82% and 81%, respectively, in the prior year periods.

These costs increased 10% and 12% in the three and six months ended March 31, 2022, respectively, from the prior year periods.

Our homebuilding operations employed 9,160 and 7,916 people at March 31, 2022 and 2021, respectively.

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

SG&A expense from homebuilding activities increased 10% to $553.2 million and $1.6 billion in the three and nine months ended June 30, 2022, respectively, from $500.7 million and $1.4 billion in the prior year periods.

SG&A expense as a percentage of homebuilding revenues was 6.6% and 6.9% in the three and nine months ended June 30, 2022, respectively, compared to 7.1% and 7.5% in the prior year periods.

Employee compensation and related costs were $445.7 million and $1.3 billion in the three and nine months ended June 30, 2022, respectively, compared to $411.6 million and $1.1 billion in the same periods of fiscal 2021.

Employee compensation and related costs represented 81% and 82% of SG&A costs in the three and nine months ended June 30, 2022, respectively, compared to 82% and 81% in the prior year periods.

These costs increased 8% and 11% in the three and nine months ended June 30, 2022, respectively, from the prior year periods.

Our homebuilding operations employed 9,590 and 8,203 people at June 30, 2022 and 2021, respectively.

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

however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

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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 $25.6 million and $50.4 million in the three and six months ended March 31, 2022, respectively, compared to $22.6 million and $47.0 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 six months ended March 31, 2022 compared to 0.7% and 0.8% in the prior year periods.

Other income, net of other expenses, included in our homebuilding operations was $1.6 million and $7.9 million in the three and six months ended March 31, 2022, respectively, compared to $1.8 million and $3.9 million in the prior year periods.

Interest incurred by our homebuilding operations was $27.9 million and $78.3 million in the three and nine months ended June 30, 2022, respectively, compared to $22.7 million and $69.7 million in the prior year periods.

Interest charged to cost of sales was 0.6% of total cost of sales (excluding inventory and land option charges) in both the three and nine months ended June 30, 2022 compared to 0.7% in both prior year periods.

Other income, net of other expenses, included in our homebuilding operations was $3.7 million and $11.6 million in the three and nine months ended June 30, 2022, respectively, compared to $4.9 million and $8.7 million in the prior year periods.

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.

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Homebuilding Results by Reporting Region

Three Months Ended March 31,

Three Months Ended June 30,

Revenues Homebuilding

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$ 8,347.8 $ 1,954.7 23.4 % $ 7,047.2 $ 1,324.6 18.8 %

Six Months Ended March 31,

Nine Months Ended June 30,

Revenues Homebuilding

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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.

Northwest Region — Homebuilding revenues increased 16% and 10% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $148.2 million and $260.0 million in the three and six months ended March 31, 2022, respectively, compared to $93.9 million and $180.7 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 560 and 530 basis points in the three and six months ended March 31, 2022, 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 10 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Southwest Region — Homebuilding revenues increased 24% and 17% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets.

The region generated pre-tax income of $226.6 million and $385.9 million in the three and six months ended March 31, 2022, respectively, compared to $130.5 million and $245.7 million in the prior year periods.

Home sales gross profit percentage increased by 440 and 400 basis points in the three and six months ended March 31, 2022, 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 120 and 80 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 33% and 29% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $416.0 million and $770.3 million in the three and six months ended March 31, 2022, respectively, compared to $251.9 million and $491.9 million in the prior year periods.

Home sales gross profit percentage increased by 360 and 310 basis points in the three and six months ended March 31, 2022, 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 100 and 90 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 13% and 18% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, due to the increases in the average selling price of homes closed in most markets.

The region generated pre-tax income of $482.2 million and $897.7 million in the three and six months ended March 31, 2022, respectively, compared to $317.2 million and $564.4 million in the prior year periods.

Home sales gross profit percentage increased by 550 and 510 basis points in the three and six months ended March 31, 2022, 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 70 and 80 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 14% and 10% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $265.9 million and $468.2 million in the three and six months ended March 31, 2022, respectively, compared to $185.2 million and $355.9 million in the prior year periods.

Home sales gross profit percentage increased by 420 and 310 basis points in the three and six months ended March 31, 2022, 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 50 and 20 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

North Region — Homebuilding revenues increased 33% and 29% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $113.9 million and $203.8 million in the three and six months ended March 31, 2022, respectively, compared to $73.4 million and $136.1 million in the prior year periods.

Home sales gross profit percentage increased by 170 and 180 basis points in the three and six months ended March 31, 2022, 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 30 basis points in the three and six months ended March 31, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

Northwest Region — Homebuilding revenues increased 2% and 7% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $161.0 million and $421.0 million in the three and nine months ended June 30, 2022, respectively, compared to $146.7 million and $327.4 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 190 and 400 basis points in the three and nine months ended June 30, 2022, 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 increased by 20 basis points in the three month period and were unchanged in the nine month period ended June 30, 2022 compared to the prior year periods.

Southwest Region — Homebuilding revenues increased 26% and 20% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets.

The region generated pre-tax income of $288.3 million and $674.2 million in the three and nine months ended June 30, 2022, respectively, compared to $167.5 million and $413.2 million in the prior year periods.

Home sales gross profit percentage increased by 500 and 440 basis points in the three and nine months ended June 30, 2022, 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 100 and 90 basis points in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 34% and 31% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets.

The region generated pre-tax income of $527.2 million and $1.3 billion in the three and nine months ended June 30, 2022, respectively, compared to $299.0 million and $790.9 million in the prior year periods.

Home sales gross profit percentage increased by 510 and 380 basis points in the three and nine months ended June 30, 2022, 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.

Southeast Region — Homebuilding revenues increased 8% and 14% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, due to the increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $532.4 million and $1.4 billion in the three and nine months ended June 30, 2022, respectively, compared to $396.1 million and $960.5 million in the prior year periods.

Home sales gross profit percentage increased by 500 basis points in both the three and nine months ended June 30, 2022 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 50 basis points in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 13% and 11% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $309.9 million and $778.1 million in the three and nine months ended June 30, 2022, respectively, compared to $222.8 million and $578.7 million in the prior year periods.

Home sales gross profit percentage increased by 400 and 340 basis points in the three and nine months ended June 30, 2022, 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 30 and 20 basis points in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

North Region — Homebuilding revenues increased 28% and 29% in the three and nine months ended June 30, 2022, respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets.

The region generated pre-tax income of $135.9 million and $339.7 million in the three and nine months ended June 30, 2022, respectively, compared to $92.5 million and $228.6 million in the prior year periods.

Home sales gross profit percentage increased by 200 and 190 basis points in the three and nine months ended June 30, 2022, 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 30 basis points in both the three and nine months ended June 30, 2022 compared to the prior year periods, primarily due to the increase in homebuilding 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 March 31, 2022 and September 30, 2021 are summarized as follows:

As of March 31, 2022

Our homebuilding segment’s inventories at June 30, 2022 and September 30, 2021 are summarized as follows:

June 30, 2022

Construction in Progress and

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$ 10,974.0 $ 6,909.4 $ 20.8 $ 32.7 $ 17,936.9

As of September 30, 2021

September 30, 2021

Construction in Progress and

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

Our land and lot position and homes in inventory at March 31, 2022 and September 30, 2021 are summarized as follows:

As of March 31, 2022

Our land and lot position and homes in inventory at June 30, 2022 and September 30, 2021 are summarized as follows:

June 30, 2022

Owned (1) Lots Controlled

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22 % 78 % 100 %

As of September 30, 2021

September 30, 2021

Owned (1) Lots Controlled

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___________________

(1) Land/lots owned included approximately 30,200 and 30,800 owned lots that are fully developed and ready for home construction at March 31, 2022 and September 30, 2021, respectively.

Land/lots owned also included land held for development representing 600 and 1,300 lots at March 31, 2022 and September 30, 2021, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at March 31, 2022 and September 30, 2021 was $18.7 billion and $15.5 billion, respectively, secured by earnest money deposits of $1.4 billion and $1.1 billion, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at March 31, 2022 and September 30, 2021 included $1.5 billion and $1.6 billion, respectively, related to lot purchase contracts with Forestar, secured by $137.7 million and $151.0 million, respectively, of earnest money.

(3) Lots controlled at March 31, 2022 included approximately 36,700 lots owned or controlled by Forestar, 19,100 of which our homebuilding divisions have under contract to purchase and 17,600 of which our homebuilding divisions have a right of first offer to purchase.

(1) Land/lots owned included approximately 31,900 and 30,800 owned lots that are fully developed and ready for home construction at June 30, 2022 and September 30, 2021, respectively.

Land/lots owned also included land held for development representing 400 and 1,300 lots at June 30, 2022 and September 30, 2021, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2022 and September 30, 2021 was $20.2 billion and $15.5 billion, respectively, secured by earnest money deposits of $1.6 billion and $1.1 billion, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2022 and September 30, 2021 included $1.5 billion and $1.6 billion, respectively, related to lot purchase contracts with Forestar, secured by $144.9 million and $151.0 million, respectively, of earnest money.

(3) Lots controlled at June 30, 2022 included approximately 38,400 lots owned or controlled by Forestar, 19,300 of which our homebuilding divisions have under contract to purchase and 19,100 of which our homebuilding divisions have a right of first offer to purchase.

Of these, approximately 14,800 lots were in our Southeast region, 7,400 lots were in our East region, 5,800 lots were in our Southwest region, 5,200 lots were in our South Central region, 4,200 lots were in our North region and 1,000 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 26,000 and 21,700 of our homes in inventory were unsold at March 31, 2022 and September 30, 2021, respectively.

At March 31, 2022, approximately 600 of our unsold homes were completed, of which approximately 60 homes had been completed for more than six months.

(4) Approximately 27,200 and 21,700 of our homes in inventory were unsold at June 30, 2022 and September 30, 2021, respectively.

At June 30, 2022, approximately 1,400 of our unsold homes were completed, of which approximately 60 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 approximately 1,800 model homes at both March 31, 2022 and September 30, 2021.

Homes in inventory exclude approximately 1,800 model homes at both June 30, 2022 and September 30, 2021.

RESULTS OF OPERATIONS – FORESTAR

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at March 31, 2022, we owned 63% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 53 markets across 23 states as of March 31, 2022.

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at June 30, 2022, we owned 63% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 52 markets across 22 states as of June 30, 2022.

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

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

Results of operations for the Forestar segment for the three and six months ended March 31, 2022 and 2021 were as follows:

Results of operations for the Forestar segment for 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

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Selling, general and administrative expense 24.1 16.9 69.9 48.7

Loss on extinguishment of debt — 18.1 — 18.1

Other (income) expense (2.9) (0.3) (4.5) (1.4)

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Revenues are primarily derived from sales of single-family residential lots to local, regional and national homebuilders.

During the three and six months ended March 31, 2022, Forestar sold 5,788 and 10,304 single-family lots, respectively, compared to 3,588 and 7,155 single-family lots in the prior year periods.

During the three and nine months ended June 30, 2022, Forestar sold 3,473 and 13,777 single-family lots, respectively, compared to 3,858 and 11,013 single-family lots in the prior year periods.

Of the total lots sold, Forestar sold 3,038 lots to D.R.

Horton for $389.7 million and 8,785 lots for $719.8 million during the three and six months ended March 31, 2022, respectively, compared to 3,358 lots for $265.3 million and 6,747 lots for $559.5 million in the prior year periods.

SG&A expense for the three and six months ended March 31, 2022 included charges of $1.0 million and $2.0 million, respectively, related to the shared services agreement between Forestar and D.R.

Horton for $258.1 million and 11,823 lots for $977.8 million during the three and nine months ended June 30, 2022, respectively, compared to 3,719 lots for $300.2 million and 10,466 lots for $859.8 million in the prior year periods.

SG&A expense for the three and nine months ended June 30, 2022 included charges of $1.1 million and $3.1 million, respectively, related to the shared services agreement between Forestar and D.R.

Horton whereby D.R.

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Shared services charges were $1.0 million and $2.9 million, respectively, in the same periods of fiscal 2021.

At March 31, 2022, Forestar owned directly or controlled through land and lot purchase contracts approximately 96,500 residential lots, of which 5,100 are fully developed.

At June 30, 2022, Forestar owned directly or controlled through land and lot purchase contracts approximately 97,000 residential lots, of which 5,300 are fully developed.

Approximately 38,400 of these lots are under contract to sell to D.R.

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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 six months ended March 31, 2022 and 2021.

Three Months Ended March 31, Six Months Ended March 31,

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

2022 2021 % Change 2022 2021 % Change

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Loans sold by DHI Mortgage to third parties 15,651 15,261 3 % 41,249 41,090 — %

Three Months Ended March 31, Six Months Ended March 31,

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

2022 2021 % Change 2022 2021 % Change

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Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

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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 six months ended March 31, 2022, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 2% and decreased 1%, respectively, from the prior year periods corresponding to the change in the number of homes closed by our homebuilding operations.

Homes closed by our homebuilding operations constituted 99% and 98% of DHI Mortgage loan originations in the three and six months ended March 31, 2022, respectively, compared to 98% in both prior year periods.

In the three and nine months ended June 30, 2022, while the number of homes closed by our homebuilding operations decreased slightly from the prior year periods, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased slightly due to an increase in the percentage of homes closed for which DHI Mortgage handled our homebuyers’ financing.

Homes closed by our homebuilding operations constituted 99% and 98% of DHI Mortgage loan originations in the three and nine months ended June 30, 2022, respectively, compared to 98% in both prior year periods.

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

The number of loans sold increased 1% and decreased 1% in the three and six months ended March 31, 2022, respectively, compared to the prior year periods.

Virtually all of the mortgage loans held for sale on March 31, 2022 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 six months ended March 31, 2022, approximately 68% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 24% were sold to one other major financial entity.

The number of loans sold increased 3% in the three month period and were essentially unchanged in the nine month period ended June 30, 2022 compared to the prior year periods.

Virtually all of the mortgage loans held for sale on June 30, 2022 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, 2022, approximately 67% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 24% 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 decreased 5% to $179.9 million and $324.0 million in the three and six months ended March 31, 2022, respectively, from $190.3 million and $342.7 million in the prior year periods, primarily due to competitive pricing pressure in the secondary mortgage market.

Revenues from our title operations increased 21% to $42.2 million and 18% to $82.4 million in the three and six months ended March 31, 2022, respectively, from $34.8 million and $69.6 million in the prior year periods, 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 12% to $138.0 million and 13% to $263.2 million in the three and six months ended March 31, 2022, respectively, from $123.7 million and $233.3 million in the prior year periods.

As a percentage of financial services revenues, G&A expense was 62.1% and 64.8% in the three and six months ended March 31, 2022, respectively, compared to 55.0% and 56.6% in the prior year periods.

The increase was primarily due to an increase in the number of employees to support 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 2,990 and 2,578 people at March 31, 2022 and 2021, respectively.

Revenues from our mortgage operations increased 41% to $209.7 million and 8% to $533.7 million in the three and nine months ended June 30, 2022, respectively, from $149.1 million and $491.9 million in the prior year periods, primarily due to significantly higher interest rate lock commitment volume, and to a lesser extent from an increase in our average loan amount.

Revenues from our title operations increased 13% to $44.6 million and 16% to $127.1 million in the three and nine months ended June 30, 2022, respectively, from $39.6 million and $109.2 million in the prior year periods, primarily due to an increase in the average premium collected on closing transactions due to higher sales prices of homes closed by our homebuilding operations, as well as expansion of our title insurance operations.

General and administrative (G&A) expense related to our financial services operations increased 8% to $137.3 million and 11% to $400.6 million in the three and nine months ended June 30, 2022, respectively, from $127.0 million and $360.4 million in the prior year periods.

As a percentage of financial services revenues, G&A expense was 54.0% and 60.6% in the three and nine months ended June 30, 2022, respectively, compared to 67.3% and 60.0% 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.

Our financial services operations employed 3,069 and 2,755 people at June 30, 2022 and 2021, 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 decrease from competitive pricing pressure in the secondary mortgage market and an increase in employee related G&A expenses, pre-tax income from our financial services operations decreased 17% to $159.9 million in the six months ended March 31, 2022 from $191.8 million in the prior year period.

As a result of the revenue increase from increased interest rate lock commitments and from title operations during the current quarter, pre-tax income from our financial services operations increased 10% to $288.2 million in the nine months ended June 30, 2022 from $262.1 million in the prior year period.

RESULTS OF OPERATIONS - RENTAL

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The multi-family rental operations develop, construct, lease and sell residential rental properties, with a primary focus on constructing garden style multi-family rental communities typically accommodating 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.

The single-family rental operations primarily construct and lease single-family homes and then market each 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 and six months ended March 31, 2022 and 2021 were as follows:

Results of operations for the rental segment for 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

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Single-family rental $ 39.5 $ 23.1 $ 292.7 $ 54.9

Multi-family rental 50.0 — 126.2 —

Multi-family rental and other 70.2 — 196.4 —

Total revenues 109.7 23.1 489.1 54.9

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Single-family rental 16.5 11.7 130.3 29.6

Multi-family rental 25.0 — 61.5 —

Multi-family rental and other 34.5 — 95.9 —

Total cost of sales 51.0 11.7 226.2 29.6

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Income before income taxes $ 42.6 $ 9.9 $ 215.1 $ 12.0

During the three months ended March 31, 2022, we sold one multi-family rental property (126 total units) for $50.0 million, and during the six months ended March 31, 2022, we sold two multi-family rental properties (477 total units) for $126.2 million.

During the three months ended June 30, 2022, we sold one multi-family rental property (298 total units) for $69.3 million, and during the nine months ended June 30, 2022, we sold three multi-family rental properties (775 total units) for $195.5 million.

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

During the three months ended March 31, 2022, we sold three single-family rental properties (368 total homes) for $172.9 million, and during the six months ended March 31, 2022, we sold five single-family rental properties (594 total homes) for $253.2 million.

There were no sales of single-family rental properties during the prior year quarter and one property (124 total homes) sold for $31.8 million in the prior year six month period.

At March 31, 2022, our rental property inventory of $1.5 billion included $597.4 million of inventory related to our multi-family rental operations and $902.7 million of inventory related to our single-family rental operations.

At March 31, 2022, we had 16 multi-family rental properties, consisting of 4,830 units, under active construction and one community, consisting of 300 units, that was substantially complete and in the lease-up phase.

At March 31, 2022, we had 98 single-family rental properties that included 6,350 homes and finished lots, of which 1,300 homes were completed, and 4,000 expected lots that were unimproved or under development.

During the three months ended June 30, 2022, we sold one single-family rental property (84 total homes) for $39.5 million, and during the nine months ended June 30, 2022, we sold six single-family rental properties (678 total homes) for $292.7 million.

There was one single-family rental property (69 total homes) sold for $23.1 million during the prior year quarter and two properties (193 total homes) sold for $54.9 million in the prior year nine month period.

At June 30, 2022, our rental property inventory of $2.0 billion included $692.0 million of inventory related to our multi-family rental operations and $1.3 billion of inventory related to our single-family rental operations.

At June 30, 2022, we had 20 multi-family rental properties, consisting of 5,810 units, under active construction and one community, consisting of 300 units, that was substantially complete and in the lease-up phase.

At June 30, 2022, we had 115 single-family rental properties that included 7,710 homes and finished lots, of which 2,390 homes were completed, and 4,340 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.

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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 $13.6 million and $24.3 million in the three and six months ended March 31, 2022, respectively, compared to $6.5 million and $12.7 million in the prior year periods.

The pre-tax income of all of our subsidiaries engaged in other business activities was $16.0 million and $40.2 million in the three and nine months ended June 30, 2022, respectively, compared to $10.1 million and $23.0 million in the prior year periods.

RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes

Pre-tax income for the three and six months ended March 31, 2022 was $1.9 billion and $3.4 billion, respectively, compared to $1.2 billion and $2.2 billion in the prior year periods.

Pre-tax income for the three and nine months ended June 30, 2022 was $2.2 billion and $5.6 billion, respectively, compared to $1.4 billion and $3.6 billion in the prior year periods.

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 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.

Our 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.

Our 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.

We have 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.

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.

Our 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.

Our 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.

Our 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.

We have 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.

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 and tax credit carryforwards.

Any reversal of the valuation allowance in future periods will impact our effective tax rate.

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

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 March 31, 2022, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $5.6 billion, with $2.4 billion payable within 12 months, including $1.6 billion outstanding under the mortgage repurchase facility.

At March 31, 2022, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 24.9% compared to 26.7% at September 30, 2021 and 25.7% at March 31, 2021.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 18.9% at March 31, 2022 compared to 12.9% at September 30, 2021 and 14.9% and March 31, 2021.

At March 31, 2022, our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 16.4% compared to 17.8% at September 30, 2021 and 16.8% at March 31, 2021.

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 11.2% at March 31, 2022 compared to 1.7% at September 30, 2021 and 5.3% at March 31, 2021.

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 are maintaining significant homebuilding cash balances and liquidity 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 June 30, 2022, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $6.0 billion, of which $2.2 billion is payable within 12 months and includes $1.4 billion outstanding under the mortgage repurchase facility.

At June 30, 2022, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 24.9% compared to 26.7% at September 30, 2021 and 24.2% at June 30, 2021.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 19.3% at June 30, 2022 compared to 12.9% at September 30, 2021 and 15.2% and June 30, 2021.

At June 30, 2022, our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 17.0% compared to 17.8% at September 30, 2021 and 16.0% at June 30, 2021.

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 12.1% at June 30, 2022 compared to 1.7% at September 30, 2021 and 6.4% at June 30, 2021.

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% through the remainder of fiscal 2022 and during fiscal 2023.

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 March 31, 2022, we had outstanding letters of credit of $236.1 million and surety bonds of $2.5 billion, issued by third parties to secure performance under various contracts.

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

At June 30, 2022, we had outstanding letters of credit of $244.7 million and surety bonds of $2.7 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.

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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.

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 and liquidity 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 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 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.

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.

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.

We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facility and ability to access the capital markets or obtain additional bank financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations.

Capital Resources - Homebuilding

Cash and Cash Equivalents — At March 31, 2022, cash and cash equivalents of our homebuilding segment totaled $1.2 billion.

Cash and Cash Equivalents — At June 30, 2022, cash and cash equivalents of our homebuilding segment totaled $1.2 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.

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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.

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 March 31, 2022, 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 March 31, 2022 that mature from September 2022 through October 2027.

At June 30, 2022, 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 June 30, 2022 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 March 31, 2022, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

At June 30, 2022, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

Our homebuilding revolving credit facility and senior notes are guaranteed by D.R.

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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.

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

At March 31, 2022, the full amount of the debt repurchase authorization was remaining, and $2.0 million of the stock repurchase authorization was remaining.

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

During the nine months ended June 30, 2022, we repurchased 10.5 million shares of our common stock for $854.2 million.

At June 30, 2022, the full amount of the debt repurchase authorization was remaining, and $690.0 million of the stock repurchase authorization was remaining.

These authorizations have no expiration date.

Capital Resources - Forestar

The achievement of Forestar’s long-term growth objectives will depend on its ability to obtain financing in sufficient capacities.

The achievement of Forestar’s long-term growth objectives will depend on its ability to obtain financing and generate cash flows from operations in sufficient capacities.

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 March 31, 2022, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 38.9% compared to 41.0% at both September 30, 2021 and March 31, 2021.

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 29.9% compared to 35.2% at September 30, 2021 and 34.1% at March 31, 2021.

Cash and Cash Equivalents — At March 31, 2022, Forestar had cash and cash equivalents of $233.7 million.

At June 30, 2022, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 38.1% compared to 41.0% at September 30, 2021 and 42.1% at June 30, 2021.

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 32.8% compared to 35.2% at September 30, 2021 and 37.8% at June 30, 2021.

Cash and Cash Equivalents — At June 30, 2022, Forestar had cash and cash equivalents of $146.3 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.

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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.

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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.

Unsecured Debt — As of March 31, 2022, 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.

Unsecured Debt — As of June 30, 2022, 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.

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or any of the subsidiaries that guarantee the debt of our 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.

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 March 31, 2022, and the authorization has no expiration date.

Issuance of Common Stock — 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.

All of the $30 million authorization was remaining at June 30, 2022, and the authorization has no expiration date.

Issuance of Common Stock — 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.

Capital Resources - Financial Services

Cash and Cash Equivalents — At March 31, 2022, cash and cash equivalents of our financial services operations totaled $102.1 million.

Cash and Cash Equivalents — At June 30, 2022, cash and cash equivalents of our financial services segment totaled $126.3 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.

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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.

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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.

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.

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Capital Resources - Rental

Cash and Cash Equivalents — At March 31, 2022, cash and cash equivalents of our rental operations segment totaled $141.1 million.

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

The inventory in our rental segment totaled $1.5 billion at March 31, 2022 compared to $840.9 million at September 30, 2021 and $543.5 million at March 31, 2021.

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

Cash and Cash Equivalents — At June 30, 2022, cash and cash equivalents of our rental segment totaled $133.9 million.

During fiscal 2022, we continued to increase the investment in our rental operations.

The inventory in our rental segment totaled $2.0 billion at June 30, 2022 compared to $840.9 million at September 30, 2021 and $760.2 million at June 30, 2021.

Bank Credit Facility — In March 2022, our 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.

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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.

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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.

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Operating Cash Flow Activities

In the six months ended March 31, 2022, net cash used in operating activities was $834.6 million compared to $154.9 million in the prior year period.

Cash used in operating activities in the current year period primarily consisted of $416.2 million, $409.1 million and $63.0 million of cash used in our homebuilding, rental and financial services segments, respectively, partially offset by $76.6 million of cash provided by our Forestar segment.

Cash used to increase construction in progress and finished home inventory was $2.1 billion in the current year period compared to $1.3 billion in the prior year period, reflecting an increase in our homes in inventory in the current period.

Cash used to increase residential land and lots was $528.4 million in the current year period compared to $975.2 million in the prior year period.

In the nine months ended June 30, 2022, net cash used in operating activities was $562.8 million compared to $34.5 million in the prior year period.

Cash used in operating activities in the current year period primarily consisted of $826.4 million and $10.2 million used in our rental and Forestar segments, respectively, partially offset by $150.1 million and $124.5 million of cash provided by our financial services and homebuilding segments, respectively.

Cash used to increase construction in progress and finished home inventory was $3.1 billion in the current year period compared to $1.7 billion in the prior year period, reflecting an increase in our homes in inventory as well as the elongation of our construction cycle in the current period.

Cash used to increase residential land and lots was $1.0 billion in the current year period compared to $1.3 billion in the prior year period.

Of these amounts, $170.3 million and $541.7 million, respectively, related to Forestar.

During the six months ended March 31, 2022, cash used to increase our single-family and multi-family rental properties was $655.9 million and is reflected as cash used in operating activities.

During the nine months ended June 30, 2022, cash used to increase our single-family and multi-family rental properties was $1.1 billion and is reflected as cash used in operating activities.

Prior to the third quarter of fiscal 2021, cash activities related to rental properties were presented as investing activities.

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Investing Cash Flow Activities

In the six months ended March 31, 2022, net cash used in investing activities was $68.7 million compared to $196.1 million in the prior year period.

In the current year period, uses of cash included purchases of property and equipment totaling $72.5 million.

In the nine months ended June 30, 2022, net cash used in investing activities was $372.9 million compared to $206.9 million in the prior year period.

In the current year period, uses of cash included the acquisition of Vidler Water Resources, Inc.

for $271.5 million, net of the cash acquired, and purchases of property and equipment totaling $108.0 million.

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

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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 six months ended March 31, 2022, net cash used in financing activities was $644.8 million, consisting primarily of repayments of amounts drawn on our homebuilding revolving credit facility totaling $750 million, cash used to repurchase shares of our common stock of $569.8 million and payment of cash dividends totaling $159.2 million.

These uses of cash were partially offset by draws on our homebuilding revolving credit facility of $750 million and net advances of $84.3 million on our mortgage repurchase facility.

During the six months ended March 31, 2021, net cash used in financing activities was $457.2 million, consisting primarily of repayment of $400 million principal amount of our 2.55% homebuilding senior notes at maturity, cash used to repurchase shares of our common stock of $420.2 million and payment of cash dividends totaling $145.6 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 net advances of $70.9 million on our mortgage repurchase facility.

During each of the first two quarters of fiscal 2022, our 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, our 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.

During the nine months ended June 30, 2022, net cash used in financing activities was $617.2 million, consisting primarily of repayments of amounts drawn on our homebuilding revolving credit facility totaling $2.1 billion, cash used to repurchase shares of our common stock of $859.7 million, payment of cash dividends totaling $238.4 million and net payments on our mortgage repurchase facility of $88.9 million.

These uses of cash were partially offset by draws on our homebuilding revolving credit facility of $2.5 billion and draws on DRH Rental’s revolving credit facility of $175 million.

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 each of the first three quarters of fiscal 2022, our 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, our 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.

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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of March 31, 2022, 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.

As of June 30, 2022, D.R.

had $3.15 billion principal amount of homebuilding senior notes outstanding due through October 2027 and $400 million outstanding on its homebuilding revolving credit facility.

All of the homebuilding senior notes and the homebuilding revolving credit facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of D.R.

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and Guarantor Subsidiaries

Summarized Balance Sheet Data March 31,

Summarized Balance Sheet Data June 30,

2022 September 30,

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1,090.9 592.4

23,675.9 19,724.9

Liabilities & Stockholders’ Equity

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16,275.5 13,567.5

Summarized Statement of Operations Data Six Months Ended

March 31, 2022 Year Ended

Summarized Statement of Operations Data Nine Months Ended

June 30, 2022 Year Ended

September 30, 2021

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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 March 31, 2022 and September 30, 2021, we had reserves for approximately 455 and 380 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the six months ended March 31, 2022, we established reserves for approximately 180 new construction defect claims and resolved 105 construction defect claims for a total cost of $12.8 million.

At March 31, 2021 and September 30, 2020, we had reserves for approximately 320 and 260 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the six months ended March 31, 2021, we established reserves for approximately 115 new construction defect claims and resolved 55 construction defect claims for a total cost of $6.2 million.

At June 30, 2022 and September 30, 2021, we had reserves for approximately 540 and 380 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the nine months ended June 30, 2022, we established reserves for approximately 285 new construction defect claims and resolved 125 construction defect claims for a total cost of $19.4 million.

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.

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.

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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