What changed in this filing

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Item 1A. Risk Factors

2022-11-18 compared with 2021-11-18 · 92 added, 79 removed, 238 unchanged (42% of the section changed)

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They describe various risks and uncertainties we are or may become subject to, many of which are difficult to predict or beyond our control.

Although the risks are organized and described separately, many of the risks are interrelated.

These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

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• demographic trends.

Adverse changes in these general and local economic conditions or deterioration in the broader economy would cause a negative impact on our business and financial results and increase the risk for asset impairments and writeoffs.

Adverse changes in these general and local economic conditions or deterioration in the broader economy may negatively impact our business and financial results and increase the risk for asset impairments and write-offs.

Changes in these economic conditions may affect some of our regions or markets more than others.

If adverse conditions affect our larger markets, they could have a proportionately greater impact on us than on some other companies.

In the past, the federal government’s fiscal and trade policies and economic stimulus actions have created uncertainty in the financial markets and caused volatility in interest rates, which impacted business and consumer behavior.

Monetary policy actions affecting interest rates or fiscal policy actions and new legislation related to taxation, spending levels or borrowing limits, along with the related political debates, conflicts and compromises associated with such actions, may negatively impact the financial markets and consumer confidence.

Such events could hurt the U.S.

The federal government’s fiscal policies and the Federal Reserve’s monetary policies may negatively impact the financial markets and consumer confidence and could hurt the U.S.

economy and the housing and rental markets and in turn, could adversely affect the operating results of our businesses.

During fiscal 2022, in response to increased inflation, the Federal Reserve raised interest rates significantly and has signaled it expects additional future interest rate increases.

As a result, mortgage interest rates increased significantly, and we began to see a moderation in housing demand.

Increases in mortgage interest rates reduce the affordability of our homes and can have an adverse impact on our business or financial results.

Deployments of U.S.

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If we experience any of the foregoing, potential customers may be less willing or able to buy our homes or our rental properties.

In the future, our pricing and product strategies may also be limited by market conditions.

Additionally, cancellations of home sales contracts in backlog may increase if homebuyers do not honor their contracts due to any of the factors discussed above.

Our pricing and product strategies may also be limited by market conditions.

We may be unable to change the mix of our home or rental offerings, reduce the costs of the homes or properties we build, offer more affordable homes or rental properties or satisfactorily address changing market conditions in other ways without adversely affecting our profits and returns.

In addition, cancellations of home sales contracts in backlog may increase if homebuyers do not honor their contracts due to any of the factors discussed above.

Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally to purchasers of the homes we build.

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An increase in the default rate on the mortgages we originate may adversely affect our ability to sell the mortgages or the pricing we receive upon the sale of mortgages or may increase our recourse obligations for previous originations.

We may be responsible for losses

associated with mortgage loans originated and sold to third-party purchasers in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower representations in the connection with the loan, and we may be required to repurchase certain of those mortgage loans or provide indemnification.

We may be responsible for losses associated with mortgage loans originated and sold to third-party purchasers in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower representations in the connection with the loan, and we may be required to repurchase certain of those mortgage loans or provide indemnification.

Repurchased mortgage loans and/or the settlement of claims associated with such loans could adversely affect our business or financial results.

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however, actual future obligations related to these mortgages could differ significantly from our current estimated amounts.

Additionally, in fiscal 2020 we began retaining mortgage servicing rights on some of our originations.

Additionally, we may retain mortgage servicing rights on our originations.

As servicer for these loans, we may incur losses by having to advance payments to the mortgage-backed securities (MBS) bondholders to the extent there are insufficient collections to satisfy the required principal and interest remittances of the underlying MBS.

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Our homebuilding operations utilize a $2.19 billion senior unsecured 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.

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

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

Forestar and its subsidiaries, our financial services and rental subsidiaries, and certain of our other subsidiaries are not guarantors under our homebuilding revolving credit facility or our homebuilding senior notes.

Our homebuilding revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the total revolving credit commitments.

The maturity date of the facility is October 28, 2027.

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

Horton, Inc.’s significant wholly-owned homebuilding subsidiaries.

Forestar has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments.

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

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

The Forestar revolving credit 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.

The maturity date of the facility is October 28, 2026.

The Forestar revolving credit facility is guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

The Forestar revolving credit facility is not guaranteed by us or our other subsidiaries.

The Forestar revolving credit facility is not guaranteed by D.R.

or any of the subsidiaries that guarantee the debt of our homebuilding, financial services or rental operations.

DRH Rental has a $1.025 billion 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.

Availability under the rental 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 September 30, 2022, the borrowing base limited the available capacity under the facility to $811.9 million.

The rental revolving credit 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.

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

The rental revolving credit facility is guaranteed by DRH Rental’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

The rental revolving credit facility is not guaranteed by D.R.

or any of the subsidiaries that guarantee the debt of our homebuilding, Forestar or financial services operations.

Our mortgage subsidiary utilizes a $1.6 billion mortgage repurchase facility to finance the majority of the loans it originates.

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Such changes affecting our mortgage repurchase facility may also make it more difficult or costly to sell the mortgages that we originate.

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

or any of the subsidiaries that guarantee the debt of our homebuilding, Forestar or rental operations.

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

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

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

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 September 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.

In October 2021, after the expiration of Forestar’s existing registration statement and at-the-market equity offering program, a new shelf registration statement became effective, registering $750 million of equity securities.

Forestar anticipates entering into a new at-the-market equity offering program under this new shelf registration statement.

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 financing will provide sufficient liquidity to fund our near-term working capital

needs and debt obligations.

Adverse changes in economic, homebuilding or capital market conditions due to COVID-19 or otherwise could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

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

Adverse changes in economic, homebuilding or capital market conditions could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

Reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates could decrease our buyers’ ability to obtain financing and adversely affect our business or financial results.

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Additionally, a reduction in the availability of financing provided by these institutions could adversely affect interest rates, mortgage availability and sales of new homes and mortgage loans.

During fiscal 2021, approximately 52% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae, and 41% were sold to two other major financial entities.

During fiscal 2022, approximately 62% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 30% were sold to one other major financial entity.

On an ongoing basis, we seek to establish loan purchase arrangements with additional financial entities.

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There can be no assurances that these programs or other programs will continue to be available in our homebuilding markets or that they will be as attractive to our customers as the programs currently offered, which could negatively affect our sales.

Mortgage rates are currently low compared to most historical periods;

however, market conditions could change causing mortgage rates to rise in the future.

When interest rates increase, the cost of owning a home increases, which will likely reduce the number of potential homebuyers who can obtain mortgage financing and could result in a decline in the demand for our homes.

Mortgage interest rates have increased significantly during fiscal 2022, and market conditions and government actions could cause mortgage rates to rise even further in the future.

When interest rates increase, the cost of owning a home increases, which reduces the number of potential homebuyers who can obtain mortgage financing and can result in a decline in the demand for our homes.

The risks associated with our land, lot and rental inventory could adversely affect our business or financial results.

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There are risks inherent in controlling, owning and developing land.

If housing demand declines, we may not be able to build, sell and rent homes profitably in some of our communities, and we may not be able to fully recover the costs of some of the land and lots we own.

If housing demand declines, we may not be able to sell homes or rental properties profitably in some of our communities, and we may not be able to fully recover the costs of some of the land and lots we own.

Also, the values of our owned undeveloped land, lots and inventories may fluctuate significantly due to changes in market conditions.

As a result, our deposits for lots controlled through purchase contracts may be put at risk, we may have to sell or rent homes or land for a lower profit margin or record inventory impairment charges on our land and lots.

As a result, our deposits for lots controlled through purchase contracts may be put at risk, we may have to sell homes, rental properties or land for a lower profit margin or record inventory impairment charges on our land and lots.

A significant deterioration in economic or homebuilding industry conditions may result in substantial inventory impairment charges.

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Investments in land, lots, home inventories and rental properties can expose us to risks of economic loss and asset impairments if housing conditions weaken or if we are unsuccessful in implementing our growth strategies.

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at September 30, 2021, we owned 63% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 56 markets across 23 states as of September 30, 2021.

Forestar’s strategy is focused on making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S.

lot development industry.

Our homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies, and we provide Forestar certain administrative, compliance, operational and procurement services through a shared services agreement.

As the controlling shareholder, we strongly influence the strategic direction and operations of Forestar.

In addition to the investment and merger with Forestar, we have acquired the homebuilding operations of several homebuilding companies in recent years, and we may make strategic acquisitions of or investments in other companies, operations or assets in the future.

We have acquired the homebuilding operations of several homebuilding companies in recent years, and in May 2022, we acquired Vidler Water Resources, Inc.

(Vidler) for a total purchase price of $290.5 million.

The assets acquired through the Vidler transaction consisted primarily of water rights and other water-related assets.

We may make strategic acquisitions of or investments in other companies, operations or assets in the future.

Such acquisitions and investments may have risks similar to those related to land, lots and home inventories, but they may also expose us to additional risks or other negative consequences.

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Also, the integration of these transactions may not be successful and may require significant time and resources, which may divert management’s attention from other operations.

Acquisitions and investments could also expose us to material liabilities not discovered in the due diligence process and may lead to litigation.

Acquisitions and investments could also raise new compliance-related obligations or expose us to material liabilities not discovered in the due diligence process that may lead to litigation.

If these transactions under-perform our expectations or are unsuccessful, we may incur significant expenses or write-offs of inventory, other assets or intangible assets such as goodwill.

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In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability.

In a highly inflationary environment, depending on industry and other economic conditions, we may be precluded from raising home prices enough to keep up with the rate of inflation, which could reduce our profit margins.

Moreover, in a highly inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which could have an adverse impact on our business or financial results.

During fiscal 2022, we began to see a moderation in housing demand as inflationary pressures and mortgage interest rates increased.

In an inflationary environment, depending on industry and other economic conditions, we may be precluded from raising home prices enough to keep up with the rate of inflation, which could reduce our profit margins.

Moreover, in an inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which can have an adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels.

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Deflation could also cause the value of our inventories to decline or reduce the value of existing homes below the related mortgage loan balance, which could potentially increase the supply of existing homes.

If oil prices decline significantly, economic conditions in markets that have significant exposure to the energy sector may weaken.

These, or other factors that increase the risk of significant deflation, could have a negative impact on our business or financial results.

These or other factors related to deflation could have a negative impact on our business or financial results.

Supply shortages and other risks related to acquiring land, building materials and skilled labor could increase our costs and delay deliveries.

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• significant increases in the cost of materials, particularly increases in the price of lumber, drywall and cement, which are significant components of home construction costs.

During fiscal 2021 and 2022, we have experienced multiple disruptions in our supply chain, which have resulted in shortages of certain building materials and tightness in the labor market.

This has caused our construction cycle to lengthen and costs of building materials to increase.

If shortages and cost increases in building materials and tightness in the labor market persist for a prolonged period of time, our profit margins could be adversely impacted if we are unable to offset cost increases by increasing the selling price of our homes.

In addition, tariffs, duties and/or trade restrictions imposed or increased on imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum and lumber, may raise our costs for these items or for the products made with them.

These factors may cause construction delays or cause us to incur more costs building our homes.

As restrictive orders relating to COVID-19 were eased and economic activity resumed, demand for our homes increased significantly.

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

If shortages and cost increases in building materials and tightness in the labor market persist for a prolonged period of time, our profit margins could be adversely impacted if we are unable to pass on future cost increases to our homebuyers by increasing the selling price of our homes.

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

In December 2019, COVID-19 emerged in the Wuhan region of China and subsequently spread worldwide.

The World Health Organization declared COVID-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions requiring closure of non-essential businesses for a period of time, which began to adversely affect our business in March 2020.

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

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

There is uncertainty regarding the extent to which and how long COVID-19 will impact the U.S.

economy and our supply chain.

The extent to which COVID-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of COVID-19 or other variant strains and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If COVID-19 or other variant strains have a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

The ongoing COVID-19 pandemic continues to affect the global economy.

The effects of the pandemic contributed to disrupting our supply chain, which has resulted in shortages of certain building materials and tightness in the labor market.

There is uncertainty regarding the extent to which and how long COVID-19 and its variant strains will continue to impact the global economy and our supply chain, and the effect of the pandemic on our operational and financial performance will depend on future developments, including its impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If COVID-19 and its variant strains continue to have a negative impact on economic conditions, our results of operations and financial condition could be adversely impacted.

Our business and financial results could be adversely affected by weather conditions and natural disasters.

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Additionally, the physical impacts of climate change may cause these occurrences to increase in frequency, severity and duration.

Any such events can delay our development work, home construction and home closings, unfavorably affect the cost or availability of materials or labor, damage homes under construction, lead to changing consumer preferences and/or negatively impact demand for new homes in affected areas.

There has been no material impact on our business from these events or material operational challenges resulting from these events, but they could adversely affect our business in the future.

Any such events can temporarily delay our development work, home construction and home closings, unfavorably affect the cost or availability of materials or labor, damage homes under construction, lead to changing consumer preferences and/or negatively impact demand for new homes in affected areas.

We have experienced temporary delays in production and short-term impacts on our sales and closings activity from weather events in recent years.

However, there have been no material lasting impacts on our business from these events or material permanent operational challenges resulting from these events, but they could adversely affect our business in the future.

The climates and geology of many of the states in which we operate, including California, Florida, Texas and other coastal areas where we have some of our larger operations and which have experienced recent natural disasters, present increased risks of adverse weather or natural disasters.

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Due to health and safety regulatory requirements and the number of homes we construct, health and safety performance is critical to the success of our business.

Any failure in health and safety performance, including compliance with potential new workplace requirements related to the COVID-19 pandemic, may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly.

Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our financial results and liquidity.

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Significant expenses of owning a home, including mortgage loan interest and state and local income and property taxes, have historically been deductible expenses for an individual’s federal income taxes, subject to various limitations.

The Tax Cuts and Jobs Act, which became effective January 1, 2018, established new limits on these federal tax deductions that could reduce the actual or perceived affordability of homeownership.

These or any further changes in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership, could adversely affect demand for and sales prices of new homes, especially in areas with relatively high housing prices or high taxes.

The Tax Cuts and Jobs Act, which became effective January 1, 2018, established new limits on these federal tax deductions.

Further changes in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership could adversely affect demand for and sales prices of new homes.

In addition, increases in property tax rates by local governmental authorities, as experienced in some areas in response to reduced federal and state funding, could adversely affect the amount of financing our potential customers could obtain or their desire to purchase new homes.

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However, given the rapidly changing nature of environmental laws and matters that may arise that are not currently known, we cannot predict our future exposure concerning such matters, and our future costs to achieve compliance or remedy potential violations could be significant.

Additionally, actual or perceived environmental, social, governance and other sustainability (ESG) matters and our response to these matters could harm our business.

Additionally, actual or perceived ESG and other sustainability matters and our response to these matters could harm our business.

Increasing governmental and societal attention to ESG matters, including expanding mandatory and voluntary reporting, diligence, and disclosure on topics such as climate change, human capital, labor and risk oversight, could expand the nature, scope, and complexity of matters that we are required to control, assess and report.

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We are also subject to an extensive number of laws and regulations because our common stock and debt securities and the common stock of our Forestar subsidiary are publicly traded in the capital markets.

These regulations govern our communications with our shareholders and the capital markets, our financial statement disclosures and our legal

processes, and they also impact the work required to be performed by our independent registered public accounting firm and our legal counsel.

These regulations govern our communications with our shareholders and the capital markets, our financial statement disclosures and our legal processes, and they also impact the work required to be performed by our independent registered public accounting firm and our legal counsel.

Changes in these laws and regulations, including the subsequent implementation of rules by the administering government authorities, may require us to incur additional compliance costs, and such costs may be significant.

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We have significant amounts of debt and may incur additional debt, which could affect our financial health and our ability to raise additional capital to fund our operations or potential acquisitions.

As of September 30, 2021, our consolidated debt was $5.4 billion, which consisted of $3.2 billion related to our homebuilding segment, $704.5 million related to our Forestar segment and $1.5 billion related to our financial services segment.

As of September 30, 2022, our consolidated debt was $6.1 billion, which consisted of $2.9 billion related to our homebuilding segment, $706 million related to our Forestar segment, $800 million related to our rental segment and $1.6 billion related to our financial services segment.

The indentures governing our homebuilding senior notes do not restrict the incurrence of future unsecured debt by us or our homebuilding subsidiaries or the incurrence of secured or unsecured debt by our non-guarantor subsidiaries, and the agreement governing our homebuilding revolving credit facility allows us to incur a substantial amount of future unsecured debt.

Also, the indentures governing our homebuilding senior notes and the agreement governing our homebuilding revolving credit facility impose restrictions on our ability and on that of the guarantors under our homebuilding senior notes and our homebuilding revolving credit facility to incur debt secured by certain assets, but still permit us and our homebuilding subsidiaries to incur significant amounts of additional secured debt.

The Forestar revolving credit facility and the indentures governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

The Forestar revolving credit facility and the indentures governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its restricted subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

The rental revolving credit facility imposes restrictions on the ability of DRH Rental and its restricted subsidiaries to incur secured and unsecured debt, but still permits DRH Rental and its restricted subsidiaries to incur a substantial amount of future secured and unsecured debt, and does not restrict the incurrence of future secured and unsecured debt by DRH Rental’s unrestricted subsidiaries.

The mortgage repurchase facility imposes restrictions on the ability of DHI Mortgage and its restricted subsidiaries to incur secured and unsecured debt, but still permits DHI Mortgage and its restricted subsidiaries to incur a substantial amount of future secured and unsecured debt, and does not restrict the incurrence of future secured and unsecured debt by DHI Mortgage’s unrestricted subsidiaries.

The amount and the maturities of our debt and the debt of our subsidiaries could have important consequences.

For example, possible consequences for our homebuilding, financial services and Forestar operations each with respect to their individual debt obligations, could:

For example, possible consequences for our homebuilding, Forestar, financial services and rental operations each with respect to their individual debt obligations, could:

• require the dedication of a substantial portion of cash flow from operations to payment of debt and reduce the ability to use cash flow for other operating or investing purposes;

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The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of debt or equity, the refinancing of debt or the sale of assets.

Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under our revolving credit facilities and mortgage repurchase facility bear interest at floating rates.

Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under the homebuilding, Forestar and rental revolving credit facilities and mortgage repurchase facility bear interest at floating rates.

The instruments governing our and our subsidiaries’ indebtedness impose certain restrictions on our and our subsidiaries’ business, and the ability of us and our subsidiaries to comply with related covenants, restrictions or limitations could adversely affect our and our subsidiaries’ financial condition or operating flexibility.

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The agreements governing our indebtedness contain restrictions on our and our guarantor subsidiaries’ ability to, among other things, engage in sale and leaseback transactions with respect to certain assets, incur secured debt, create liens, pay dividends and make other distributions on or redeem or repurchase equity securities, sell certain assets and engage in mergers, consolidations or sales of all or substantially all of our assets.

The instruments governing Forestar’s indebtedness contain restrictions on the ability of Forestar and certain of its subsidiaries to, among other things, incur additional indebtedness, create liens, pay dividends and make other distributions on or redeem or repurchase equity securities, sell certain assets, enter into affiliate transactions and engage in mergers, consolidations or sales of all or substantially all of Forestar’s assets.

The applicable instruments governing each of Forestar’s indebtedness and DRH Rental’s indebtedness contain restrictions on the ability of Forestar and DRH Rental, as applicable, and certain of their respective subsidiaries to, among other things, incur additional indebtedness, create liens, pay dividends and make other distributions on or redeem or repurchase equity securities, sell certain assets, enter into affiliate transactions and engage in mergers, consolidations or sales of all or substantially all of Forestar’s or DRH Rental’s assets, as applicable.

In addition, the agreements governing certain of our and our subsidiaries’ debt instruments contain the following 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.

Forestar’s revolving credit facility.

The Forestar revolving credit facility contains financial covenants requiring the maintenance by Forestar of a minimum level of tangible net worth, a minimum level of liquidity, a maximum allowable leverage ratio and a borrowing base restriction based on the book value of Forestar’s real estate assets and unrestricted cash.

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

Forestar and rental revolving credit facilities.

The Forestar and rental revolving credit facilities each contain financial covenants requiring the maintenance by Forestar or DRH Rental, as applicable, of a minimum level of tangible net worth, a minimum level of liquidity, a maximum allowable leverage ratio and a borrowing base restriction based on the book value of Forestar’s or DRH Rental’s real estate assets and unrestricted cash.

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

Mortgage repurchase facility and other restrictions.

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Any difficulty experienced in complying with these covenants could make the renewal of the facility more difficult or costly.

In addition, although our financial services business is conducted through subsidiaries that are not restricted by the indentures governing our senior notes or the agreement governing our revolving credit facility, the ability of our financial services subsidiaries to distribute funds to our homebuilding operations would be restricted in the event such distribution would cause an event of default under the mortgage repurchase facility or if an event of default had occurred under this facility.

In addition, although our financial services business is conducted through subsidiaries that are not restricted by the indentures governing our and Forestar’s senior notes or the agreements governing the homebuilding, Forestar and rental revolving credit facilities, the ability of our financial services subsidiaries to distribute funds to our homebuilding operations would be restricted in the event such distribution would cause an event of default under the mortgage repurchase facility or if an event of default had occurred under this facility.

Moreover, our right to receive assets from our financial services subsidiaries upon their liquidation or recapitalization is subject to the prior claims of the creditors of these subsidiaries.

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Upon the occurrence of a change of control triggering event (as defined in the indentures governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any.

A change of control (as defined in the Forestar revolving credit facility) with respect to Forestar would constitute an event of default under the Forestar revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

A change of control (as defined in the Forestar revolving credit facility) with respect to Forestar would constitute an event of default under the Forestar revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the Forestar revolving credit facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

If the maturity of the Forestar revolving credit facility and/or other indebtedness of Forestar and its restricted subsidiaries together having an aggregate principal amount outstanding of $40 million or more is accelerated, an event of default would result under the indentures governing the Forestar notes, entitling the trustee for the Forestar notes or holders of at least 25% in aggregate principal amount of the then outstanding Forestar notes to declare all such Forestar notes to be due and payable immediately.

If purchase offers were required under the indentures for Forestar’s notes, repayment of the borrowings under Forestar’s revolving credit facility were required, or if Forestar’s notes were accelerated, we can give no assurance that Forestar would have sufficient funds to pay the required amounts.

Change of control default under the rental revolving credit facility .

A change of control (as defined in the rental revolving credit facility agreement) with respect to DRH Rental would constitute an event of default under the rental revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the rental revolving credit facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

If repayment of the borrowings under the rental revolving credit facility were required, we can give no assurance that DRH Rental would have sufficient funds to pay the required amounts.

Change of control default under mortgage repurchase facility .

A change of control (as defined in the mortgage repurchase facility) with respect to DHI Mortgage would constitute an event of default under the mortgage repurchase facility, which could result in the acceleration of the repurchase of any loans outstanding under the facility and an increase in the repurchase price of such loans.

If repayments of the loans under DHI Mortgage’s mortgage repurchase facility were required, we can give no assurance that DHI Mortgage would have sufficient funds to pay the required amounts.

General Risk Factors

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These information technology systems are dependent upon global communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet infrastructure that have experienced security breaches, cyber-attacks, ransomware attacks, significant systems failures and service outages in the past.

Our normal business activities involve collecting and storing information specific to our homebuyers, renters, employees, vendors and suppliers and maintaining operational and financial information related to our business, both in an office setting and remote locations as needed.

Additionally, phishing attacks, whereby perpetrators attempt to fraudulently induce employees, customers, vendors or other users of a company’s systems to disclose sensitive information to gain access to its data, have become more prevalent in recent years.

The use of remote work environments and virtual platforms may increase our risk of cyber-attack or data security breaches.

Further, geopolitical tensions or conflicts, such as the ongoing conflict between Russia and Ukraine, may create a heightened risk of cyber-attacks or other data security breaches.

an office setting and remote locations as needed.

A material breach in the security of our information technology systems or other data security controls could include the theft or release of this information.

A data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to

lose customers, adversely impact our sales and revenue and require us to incur significant expense to address and remediate or otherwise resolve these kinds of issues.

The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach could also lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach by any means could lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

The outcome of such proceedings, which could include penalties or fines, could have a significant negative impact on our business.

We may also be required to incur significant costs to protect against damages caused by information technology failures, security breaches, and the failure to satisfy privacy and data protection laws and regulations in the future as legal requirements continue to increase.

The European Union and other international regulators, as well as state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act, and other governments are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems, and for apprising individuals of the information we have collected about them.

We have incurred costs in an effort to comply with these requirements, and our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights.

Any noncompliance could result in our incurring substantial penalties and reputational damage, and also could result in litigation.

We provide employee awareness training of cybersecurity threats and routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data.

Our increased use of remote work environments and virtual platforms in response to the COVID-19 pandemic may also increase our risk of cyber-attack or data security breaches.

The European Union and other international regulators, as well as state governments, have enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act (and its successor the California Privacy Rights Act which will go into effect on January 1, 2023), and other governments are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems, including notifying individuals regarding information we have collected from them.

We have incurred costs in an effort to comply with these requirements, but our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights.

Any noncompliance could result in substantial penalties, reputational damage or litigation.

We provide employee awareness training about cybersecurity threats.

We routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data.

We use various encryption, tokenization and authentication technologies to mitigate cybersecurity risks and have increased our monitoring capabilities to enhance early detection and rapid response to potential cyber threats.

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As such, we may be unable to anticipate these techniques, to implement adequate preventative measures or to identify and investigate cybersecurity incidents.

Consequently, we cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

Although past cybersecurity incidents have not had a material effect on our business or operations to date, in the future a data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose customers.

We cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

UNRESOLVED STAFF COMMENTS

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What changed 10-K

Item 1A. Risk Factors