What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-18 compared with 2021-11-18 · 233 added, 332 removed, 608 unchanged (48% of the section changed)

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MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and notes to those statements that appear elsewhere in this Form 10-K.

This section generally discusses the results of operations for fiscal 2021 compared to 2020.

This section discusses the results of operations for fiscal 2022 compared to 2021.

For similar operating and financial data and discussion of our fiscal 2021 results compared to our fiscal 2020 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2021, which was filed with the SEC on November 18, 2021.

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Net income was $5.9 billion in fiscal 2022 compared to $4.2 billion in fiscal 2021, and our diluted earnings per share was $16.51 compared to $11.41.

Cash provided by our homebuilding operations was $1.2 billion in fiscal 2021 compared to $1.9 billion in fiscal 2020.

Consolidated net cash provided by operating activities was $561.8 million in fiscal 2022 and $534.4 million in fiscal 2021, and cash provided by our homebuilding operations was $1.9 billion in fiscal 2022 compared to $1.2 billion in fiscal 2021.

In fiscal 2022, our return on equity (ROE) was 34.5% compared to 31.6% in fiscal 2021, and our homebuilding return on inventory (ROI) was 42.8% compared to 37.9%.

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

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

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

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

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

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

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 many of our communities in the near term to match our production levels.

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

In June 2022, we began to see a moderation in housing demand that persisted through the end of our fiscal year as mortgage interest rates increased substantially and inflationary pressures remained elevated.

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.

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 home pricing, sales incentives and number of homes in inventory based on the level of homebuyer demand.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 77% of the lots owned and controlled at September 30, 2022 compared to 76% at September 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.

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

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

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

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

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

Our strategy remains consistent and includes the following initiatives:

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

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

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

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

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• Managing our inventory of 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.

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

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

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

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

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

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

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

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

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

• Opportunistically evaluating potential acquisitions to enhance our operating platform.

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

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

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• Homebuilding revenues increased 20% to $31.9 billion compared to $26.6 billion.

• Homes closed increased 25% to 81,965 homes, and the average closing price of those homes was $323,300.

• Net sales orders increased 4% to 81,378 homes, and the value of net sales orders increased 18% to $27.7 billion.

• Sales order backlog decreased 2% to 26,221 homes, while the value of sales order backlog increased 16% to $9.5 billion.

• Homes closed increased 1% to 82,744 homes, and the average closing price of those homes increased 19% to $385,100.

• Net sales orders decreased 6% to 76,137 homes, while the value of net sales orders increased 9% to $30.4 billion.

• Sales order backlog decreased 25% to 19,614 homes, and the value of sales order backlog decreased 16% to $8.0 billion.

• Home sales gross margin was 28.7% compared to 25.5%.

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• Homebuilding debt to total capital was 13.2% compared to 17.8%, and net homebuilding debt to total capital was 4.4% compared to 1.7%.

• Forestar’s revenues increased 42% to $1.3 billion compared to $931.8 million.

Revenues in fiscal 2021 and 2020 included $1.2 billion and $887.4 million, respectively, of revenue from land and lot sales to our homebuilding segment.

• Forestar’s revenues increased 15% to $1.5 billion compared to $1.3 billion.

Revenues in both fiscal 2022 and 2021 included $1.2 billion of revenue from land and lot sales to our homebuilding segment.

• Forestar’s lots sold increased 11% to 17,691 compared to 15,915.

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Horton totaled 14,895 compared to 14,839.

• Forestar’s pre-tax income was $146.6 million, which included an $18.1 million loss on extinguishment of debt, compared to $78.1 million.

• Forestar’s pre-tax income was 11.1% of Forestar revenues compared to 8.4%.

• Forestar’s pre-tax income was $235.8 million compared to $146.6 million.

• Forestar’s pre-tax income was 15.5% of revenues compared to 11.1%.

• Forestar’s cash and cash equivalents totaled $264.8 million compared to $153.6 million.

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• Forestar’s debt was $706.0 million compared to $704.5 million.

• Forestar’s debt to total capital was 41.0% compared to 42.4%.

Forestar’s net debt to total capital was 35.2% compared to 22.1%.

• Forestar’s debt to total capital was 37.1% compared to 41.0%, and Forestar’s net debt to total capital was 26.9% compared to 35.2%.

Financial Services:

• Financial services revenues increased 41% to $823.6 million compared to $584.9 million.

• Financial services pre-tax income increased 49% to $364.6 million compared to $245.2 million.

• Financial services revenues decreased 3% to $795.0 million compared to $823.6 million.

• Financial services pre-tax income decreased 20% to $290.6 million compared to $364.6 million.

• Financial services pre-tax income was 36.6% of financial services revenues compared to 44.3%.

• Rental revenues were $510.2 million compared to $267.8 million.

• Rental pre-tax income was $202.0 million compared to $86.5 million.

• Rental inventory totaled $2.6 billion compared to $840.9 million.

• Multi-family rental units closed totaled 775 compared to 959.

• Single-family rental homes closed totaled 774 compared to 257.

Consolidated Results:

• Consolidated revenues increased 21% to $33.5 billion compared to $27.8 billion.

• Consolidated pre-tax income increased 42% to $7.6 billion compared to $5.4 billion.

• Consolidated pre-tax income was 22.8% of consolidated revenues compared to 19.3%.

• Income tax expense was $1.2 billion compared to $602.5 million, and our effective tax rate was 21.8% compared to 20.2%.

• Income tax expense was $1.7 billion compared to $1.2 billion, and our effective tax rate was 22.7% compared to 21.8%.

• Net income attributable to D.R.

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Horton increased 45% to $16.51 compared to $11.41.

• Net cash provided by operations was $534.4 million compared to $1.4 billion.

• Net cash provided by operations was $561.8 million compared to $534.4 million.

• Stockholders’ equity was $19.4 billion compared to $14.9 billion.

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Results of Operations — Homebuilding

Due to the change in aggregation of our homebuilding operating segments into six new reportable segments during fiscal 2021, the following tables and related discussion of our homebuilding results include comparative information for the fiscal years ended September 30, 2021, 2020 and 2019.

Based on the new aggregation, our six reporting segments and the states in which we have homebuilding operations are as follows:

Our operating segments are our 78 homebuilding divisions, our majority-owned Forestar residential lot development operations, our financial services operations, our rental operations and our other business activities.

The homebuilding operating segments are aggregated into six reporting segments.

These reporting segments, which we also refer to as reporting regions, have homebuilding operations located in the following states:

Colorado, Oregon, Utah and Washington

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South Central:

Oklahoma and Texas

Arkansas, Oklahoma and Texas

Alabama, Florida, Louisiana and Mississippi

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

New Jersey, Ohio, Pennsylvania and Virginia

Net Sales Orders (1) Net Homes Sold

Year Ended September 30, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

Northwest 4,530 5,308 3,919 (15) % 35 %

Southwest 9,456 10,214 7,382 (7) % 38 %

South Central 23,631 21,511 14,942 10 % 44 %

Southeast 24,239 21,103 15,640 15 % 35 %

East 14,038 14,480 11,011 (3) % 32 %

North 5,484 5,842 3,671 (6) % 59 %

81,378 78,458 56,565 4 % 39 %

Value (In millions)

Northwest $ 2,320.2 $ 2,342.3 $ 1,737.4 (1) % 35 %

Southwest 4,179.3 3,838.8 2,909.8 9 % 32 %

South Central 6,992.9 5,555.2 3,821.5 26 % 45 %

Southeast 7,632.1 5,781.2 4,122.0 32 % 40 %

East 4,496.9 4,086.3 3,034.1 10 % 35 %

North 2,126.8 2,002.5 1,218.6 6 % 64 %

$ 27,748.2 $ 23,606.3 $ 16,843.4 18 % 40 %

Average Selling Price

New Jersey, Ohio, Pennsylvania, Virginia and 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 fiscal years ended September 30, 2022 and 2021.

Net Sales Orders (1)

Year Ended September 30,

Net Homes Sold Value (In millions) Average Selling Price

Change 2022 2021 %

Northwest 4,509 4,530 — % $ 2,566.5 $ 2,320.2 11 % $ 569,200 $ 512,200 11 %

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Net Sales Orders

2021 versus 2020

The number of net sales orders increased 4% during 2021 compared to 2020, and the value of net sales orders increased 18% to $27.7 billion (81,378 homes) in 2021 from $23.6 billion (78,458 homes) in 2020.

The number of net sales orders decreased 6% during 2022 compared to 2021, and the value of net sales orders increased 9% to $30.4 billion (76,137 homes) in 2022 from $27.7 billion (81,378 homes) in 2021 due to the increase in our average selling price.

The average selling price of net sales orders during fiscal 2022 was $398,900, up 17% from the prior year.

During fiscal 2021, demand for homes remained strong.

As a result, during the second half of fiscal 2021, we slowed our home sales pace to more closely align with our production levels, and we are selling homes later in the construction cycle when we have more certainty regarding the home close date for our homebuyers.

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

Although these challenges may persist for some time, we expect to ultimately increase our production capacity and close more homes in fiscal 2022 than we closed in fiscal 2021.

In regions with an increase in sales volume, the markets contributing most to the increases were the San Antonio and Dallas markets in the South Central and the Florida markets (particularly Tampa) in the Southeast.

In regions with a decrease in sales volume, the markets having the most effect were as follows:

the Seattle and Portland markets in the Northwest;

the Phoenix market in the Southwest;

the Charlotte and Atlanta markets in the East;

and the Minneapolis market in the North.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 17% in 2021 compared to 20% in 2020.

2020 versus 2019

The number of net sales orders increased 39% during 2020 compared to 2019, with significant increases in all of our regions.

The value of net sales orders increased 40% to $23.6 billion (78,458 homes) in 2020 from $16.8 billion (56,565 homes) in 2019.

The average selling price of net sales orders during 2020 was $300,900, up 1% from the prior year.

The markets contributing most to the increases in sales volumes in our regions were as follows:

the Denver and Portland markets in the Northwest;

the Phoenix and California markets in the Southwest;

the Houston and Dallas markets in the South Central;

the Florida markets (particularly Tampa) in the Southeast;

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

and the Minneapolis, Delaware and Indiana markets in the North.

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

We restricted our sales order pace during the year 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.

Our net sales order volume decreased 15% in the fourth quarter of fiscal 2022 compared to the prior year quarter, and the average selling price of net sales orders declined by 4% sequentially in the fourth quarter compared to the third quarter.

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.

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

the Arizona and California markets in the Southwest;

the Austin market in the South Central;

the Louisiana markets in the Southeast;

and the Atlanta market in the East.

In the North region, the markets contributing most to the increase in sales order volume were the Chicago, Indianapolis, New Jersey and Iowa markets.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 21% in 2022 compared to 17% in 2021.

Sales Order Backlog Homes in Backlog

As of September 30, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

Northwest 954 1,544 694 (38) % 122 %

Southwest 3,438 3,742 1,673 (8) % 124 %

South Central 8,733 7,213 3,667 21 % 97 %

Southeast 7,319 6,922 3,740 6 % 85 %

East 4,217 4,857 2,643 (13) % 84 %

North 1,560 2,405 1,196 (35) % 101 %

26,221 26,683 13,613 (2) % 96 %

Value (In millions)

Northwest $ 497.7 $ 693.1 $ 301.6 (28) % 130 %

Southwest 1,495.9 1,341.3 675.6 12 % 99 %

South Central 2,825.4 1,904.9 964.2 48 % 98 %

Southeast 2,534.7 1,968.6 1,051.3 29 % 87 %

East 1,469.4 1,426.4 748.6 3 % 91 %

North 640.0 851.3 398.8 (25) % 113 %

$ 9,463.1 $ 8,185.6 $ 4,140.1 16 % 98 %

Average Selling Price

The increase in the cancellation rate primarily reflects the moderation in demand we experienced beginning in June 2022 as mortgage rates increased substantially and inflationary pressures remained elevated throughout the remainder of the year.

Our cancellation rate in the fourth quarter of fiscal 2022 was 32%, up sequentially from 24% in the third quarter.

Sales Order Backlog

As of September 30,

Homes in Backlog Value (In millions) Average Selling Price

Change 2022 2021 %

Northwest 724 954 (24) % $ 427.1 $ 497.7 (14) % $ 589,900 $ 521,700 13 %

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A portion of the contracts in backlog will not result in closings due to cancellations.

Home Closings and Revenue Homes Closed

Year Ended September 30, % Change

2021 2020 2019 2021 vs 2020 2020 vs 2019

Northwest 5,120 4,458 3,878 15 % 15 %

Southwest 9,760 8,145 7,578 20 % 7 %

South Central 22,236 17,965 15,428 24 % 16 %

Southeast 23,842 17,921 15,411 33 % 16 %

East 14,678 12,266 11,086 20 % 11 %

North 6,329 4,633 3,594 37 % 29 %

81,965 65,388 56,975 25 % 15 %

Home Sales Revenue (In millions)

Northwest $ 2,515.6 $ 1,950.8 $ 1,718.3 29 % 14 %

Southwest 4,024.7 3,173.1 2,999.7 27 % 6 %

South Central 6,104.2 4,614.6 3,932.9 32 % 17 %

Southeast 7,066.1 4,863.8 4,009.9 45 % 21 %

East 4,453.9 3,408.5 3,075.9 31 % 11 %

North 2,338.1 1,550.0 1,188.3 51 % 30 %

$ 26,502.6 $ 19,560.8 $ 16,925.0 35 % 16 %

Average Selling Price

Homes Closed and Revenue

Year Ended September 30,

Homes Closed Home Sales Revenue (In millions) Average Selling Price

Change 2022 2021 %

Northwest 4,739 5,120 (7) % $ 2,637.1 $ 2,515.6 5 % $ 556,500 $ 491,300 13 %

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Home Sales Revenue

2021 versus 2020

Revenues from home sales increased 20% to $31.9 billion (82,744 homes closed) in 2022 from $26.5 billion (81,965 homes closed) in 2021.

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

The number of homes closed in 2021 increased 25% from 2020.

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

the Denver and Salt Lake City markets in the Northwest;

the Phoenix and California markets in the Southwest;

the Houston and Dallas markets in the South Central;

the Florida markets (particularly Tampa) in the Southeast;

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

and the Indiana and Delaware markets in the North.

2020 versus 2019

Revenues from home sales increased 16% to $19.6 billion (65,388 homes closed) in 2020 from $16.9 billion (56,975 homes closed) in 2019.

Home sales revenues increased in all of our regions primarily due to an increase in the number of homes closed.

Although our homes closed during the year were 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 in 2022 increased 1% from 2021.

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

the Denver and Portland markets in the Northwest;

the California markets in the Southwest;

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

the Florida markets (particularly Tampa) in the Southeast;

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

and the Delaware, Indiana and Iowa markets in the North.

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

the Dallas market in the South Central and the 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 and the Orlando market in the Southeast.

Homebuilding Operating Margin Analysis

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Year Ended September 30,

2021 2020 2019

Gross profit — home sales 28.7 % 25.5 %

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Home Sales Gross Profit

2021 versus 2020

Gross profit from home sales increased to $9.1 billion in 2022 from $6.8 billion in 2021 and increased 320 basis points to 28.7% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 340 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes, 20 basis points due to a decrease in the amortization of capitalized interest and 10 basis points due to a decrease in warranty and construction defect costs.

The percentage increase resulted from improvements of 340 basis points due to the average selling price of our homes closed increasing by more than the average cost of those homes, 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.

2020 versus 2019

Gross profit from home sales increased to $4.3 billion in 2020 from $3.4 billion in 2019 and increased 160 basis points to 21.8% as a percentage of home sales revenues.

The percentage increase resulted from improvements of 150 basis points due to a decrease in the average cost of our homes closed while the average selling price increased slightly, 20 basis points from a decrease in the amount of purchase accounting adjustments related to prior year acquisitions and 10 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.

To adjust to market conditions, we increased our use of incentives in the fourth quarter of fiscal 2022, and our home sales gross profit margin declined sequentially by 180 basis points from 30.1% in the third quarter to 28.3% in the fourth quarter.

During fiscal 2023, we expect to continue offering a higher level of incentives and also expect our average sales price to decrease, which will cause our gross profit margins to decline from current levels.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $75.0 million, $80.7 million and $91.9 million in fiscal 2021, 2020 and 2019, respectively.

Land/lot sales and other revenues from our homebuilding operations were $61.4 million and $75.0 million in fiscal 2022 and 2021, respectively.

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

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

As of September 30, 2021, we determined that no communities were impaired, and no impairment charges were recorded during the three months ended September 30, 2021.

There were $5.6 million of homebuilding impairment charges recorded during fiscal 2021 compared to $1.7 million and $24.9 million of impairment charges recorded in fiscal 2020 and 2019, respectively.

As a result of these reviews, there were no impairments recorded in our homebuilding segment during the three months ended September 30, 2022 or during fiscal 2022.

There were $5.6 million of homebuilding impairment charges recorded in fiscal 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 fiscal 2021, 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $19.3 million, $21.2 million and $28.3 million, respectively.

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

During fiscal 2022 and 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $57.2 million and $19.3 million, respectively.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities was $1.9 billion, $1.6 billion and $1.5 billion in fiscal 2021, 2020 and 2019, respectively, an increase of 22% in 2021 and 8% in 2020 from the respective prior years.

SG&A expense from homebuilding activities increased 12% to $2.2 billion in fiscal 2022 from $1.9 billion in fiscal 2021.

SG&A expense as a percentage of homebuilding revenues was 6.8% and 7.3% in fiscal 2022 and 2021, respectively.

Employee compensation and related costs were $1.6 billion, $1.2 billion and $1.1 billion in fiscal 2021, 2020 and 2019, respectively, representing 81%, 75% and 72% of SG&A costs in those years.

These costs increased 31% in 2021 and 13% in 2020.

Employee compensation and related costs were $1.8 billion and $1.6 billion in fiscal 2022 and 2021, respectively, representing 82% and 81% of SG&A costs in those years.

These costs increased 13% in fiscal 2022 from the prior year period.

Our homebuilding operations employed 9,499 and 8,429 people at September 30, 2022 and 2021, respectively.

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

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 $93.6 million, $93.0 million and $104.7 million in fiscal 2021, 2020 and 2019, respectively.

Interest incurred by our homebuilding operations was $110.7 million and $93.6 million in fiscal 2022 and 2021, respectively.

Interest charged to cost of sales was 0.6% and 0.7% of total cost of sales (excluding inventory and land option charges) in those years.

Other income, net of other expenses, included in our homebuilding operations was $10.3 million, $11.7 million and $9.5 million in fiscal 2021, 2020 and 2019, respectively.

Other income, net of other expenses, included in our homebuilding operations was $16.4 million in fiscal 2022 compared to $10.3 million in fiscal 2021.

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.

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

Business Acquisition

In October 2020, we acquired the homebuilding operations of Braselton Homes in Corpus Christi, Texas for approximately $23.0 million in cash.

The assets acquired included approximately 90 homes in inventory, 95 lots and control of approximately 840 additional lots through purchase contracts.

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

Homebuilding Results by Reporting Region

Year Ended September 30,

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

2021 2020 2019 2021 2020 2019 2021 2020 2019

Revenues Homebuilding

Income (1) % of

Revenues Homebuilding

Income (1) % of

(In millions)

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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.

2021 versus 2020

Northwest Region — Homebuilding revenues increased 29% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the number of homes closed in our Denver, Salt Lake City and Seattle markets as well as an increase in the average selling price.

Northwest Region — Homebuilding revenues increased 6% in fiscal 2022 compared to fiscal 2021, due to increases in the average selling price of homes closed in all markets, partially offset by a decrease in the number of homes closed in our Seattle and Portland markets.

The region generated pre-tax income of $560.8 million in 2022 compared to $510.8 million in 2021.

Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 130 basis points in 2022 compared to 2021, 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 basis points in 2021 compared to 2020, primarily due to the increase in homebuilding revenues.

Southwest Region — Homebuilding revenues increased 26% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the number of homes closed in our California and Phoenix markets.

As a percentage of homebuilding revenues, SG&A expenses increased by 10 basis points in 2022 compared to 2021.

Southwest Region — Homebuilding revenues increased 19% in fiscal 2022 compared to fiscal 2021, primarily due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $968.3 million in 2022 compared to $653.1 million in 2021.

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As a percentage of homebuilding revenues, SG&A expenses decreased by 70 basis points in 2022 compared to 2021, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 32% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the number of homes closed in our Houston, Dallas and Austin markets.

The region generated pre-tax income of $1.2 billion in 2021 compared to $714.9 million in 2020.

Home sales gross profit percentage increased by 260 basis points in 2021 compared to 2020, 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 basis points in 2021 compared to 2020, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 45% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the number of homes closed in all of our markets.

The region generated pre-tax income of $1.4 billion in 2021 compared to $709.5 million in 2020.

South Central Region — Homebuilding revenues increased 34% in fiscal 2022 compared to fiscal 2021, primarily due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $1.9 billion in 2022 compared to $1.2 billion in 2021.

Home sales gross profit percentage increased by 370 basis points in 2022 compared to 2021, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 80 basis points in 2022 compared to 2021, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 31% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $795.1 million in 2021 compared to $484.3 million in 2020.

Southeast Region — Homebuilding revenues increased 12% in fiscal 2022 compared to fiscal 2021, due to increases in the average selling price of homes closed in all markets, partially offset by a decrease in the number of homes closed.

The region generated pre-tax income of $1.9 billion in 2022 compared to $1.4 billion in 2021.

Home sales gross profit percentage increased by 440 basis points in 2022 compared to 2021, 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 2022 compared to 2021, primarily due to the increase in homebuilding revenues.

North Region — Homebuilding revenues increased 51% in fiscal 2021 compared to fiscal 2020, primarily due to increases in the number of homes closed in our Indianapolis and Delaware markets.

The region generated pre-tax income of $331.7 million in 2021 compared to $126.2 million in 2020.

East Region — Homebuilding revenues increased 19% in fiscal 2022 compared to fiscal 2021, due to increases in the average selling price of homes closed in all markets.

The region generated pre-tax income of $1.1 billion in 2022 compared to $795.1 million in 2021.

Home sales gross profit percentage increased by 300 basis points in 2022 compared to 2021, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 40 basis points in 2022 compared to 2021, primarily due to the increase in homebuilding revenues.

2020 versus 2019

Northwest Region — Homebuilding revenues increased 13% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our Denver and Portland markets.

The region generated pre-tax income of $264.5 million in 2020 compared to $222.9 million in 2019.

Home sales gross profit percentage decreased by 20 basis points in 2020 compared to 2019, primarily due to the average selling price of homes closed decreasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses decreased by 40 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

Southwest Region — Homebuilding revenues increased 6% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in most of our markets.

The region generated pre-tax income of $366.1 million in 2020 compared to $284.5 million in 2019.

Home sales gross profit percentage increased by 60 basis points in 2020 compared to 2019, primarily due to the average cost of homes closed decreasing by more than the average selling price.

The region also benefited from lower inventory and land option charges, which were $3.5 million in 2020 compared to $18.6 million in 2019.

As a percentage of homebuilding revenues, SG&A expenses decreased by 60 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 17% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our Houston, Dallas and San Antonio markets.

The region generated pre-tax income of $714.9 million in 2020 compared to $527.6 million in 2019.

Home sales gross profit percentage increased by 140 basis points in 2020 compared to 2019, primarily due to an increase in the average selling price of homes closed while the average cost of those homes decreased.

As a percentage of homebuilding revenues, SG&A expenses decreased by 60 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 21% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in all of our markets.

North Region — Homebuilding revenues increased 27% in fiscal 2022 compared to fiscal 2021, due to increases in the average selling price and the number of homes closed in all markets.

The region generated pre-tax income of $456.3 million in 2022 compared to $331.7 million in 2021.

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As a percentage of homebuilding revenues, SG&A expenses decreased by 20 basis points in 2022 compared to 2021, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 11% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the average selling price of homes closed in our Myrtle Beach, Knoxville and Charlotte markets.

The region generated pre-tax income of $484.3 million in 2020 compared to $361.9 million in 2019.

Home sales gross profit percentage increased by 210 basis points in 2020 compared to 2019, primarily due to an increase in the average selling price of homes closed while the average cost of those homes decreased.

As a percentage of homebuilding revenues, SG&A expenses decreased by 30 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

North Region — Homebuilding revenues increased 30% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our Delaware, Iowa, Indianapolis and New Jersey markets.

The region generated pre-tax income of $126.2 million in 2020 compared to $36.0 million in 2019.

Home sales gross profit percentage increased by 380 basis points in 2020 compared to 2019, primarily due to an increase in the average selling price of homes closed while the average cost of those homes decreased.

As a percentage of homebuilding revenues, SG&A expenses decreased by 130 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

Homebuilding Inventories, Land and Lot Position and Homes in Inventory

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

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30, 2021 and 2020 was $15.5 billion and $9.9 billion, respectively, secured by earnest money deposits of $1.1 billion and $653.4 million, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30, 2022 and 2021 was $19.7 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 September 30, 2022 and 2021 included $1.4 billion and $1.6 billion, respectively, related to lot purchase contracts with Forestar, secured by $131.7 million and $151.0 million, respectively, of earnest money.

Our lots controlled under land and lot purchase contracts include approximately 4,077 lots at September 30, 2022, representing lots controlled under contracts for which we do not expect to exercise our option to purchase the land or lots, but the underlying contracts have yet to be terminated.

We have reserved the deposits related to these contracts if the deposits are not refundable.

(3) Lots controlled at September 30, 2022 included approximately 36,700 lots owned or controlled by Forestar, 17,800 of which our homebuilding divisions have under contract to purchase and 18,900 of which our homebuilding divisions have a right of first offer to purchase.

Of these, approximately 17,800 lots were in our Southeast region, 6,500 lots were in our East region, 5,400 lots were in our Southwest region, 4,600 lots were in our South Central region, 3,400 lots were in our North region and 1,500 lots were in our Northwest region.

Of these, approximately 14,100 lots were in our Southeast region, 6,800 lots were in our East region, 6,200 lots were in our South Central region, 4,900 lots were in our Southwest region, 3,900 lots were in our North region and 800 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.

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(In millions)

Residential lot sales $ 1,293.1 $ 880.3

Tract sales and other 32.7 51.5

Total revenues $ 1,519.1 $ 1,325.8

Cost of sales 1,096.6 813.7

Cost of land/lot sales and other 1,182.7 1,093.6

Inventory and land option charges 12.4 3.0

Total cost of sales 1,195.1 1,096.6

Selling, general and administrative expense 93.6 68.4

Gain on sale of assets (2.5) (0.1)

Loss on extinguishment of debt — 18.1

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Income before income taxes $ 235.8 $ 146.6

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

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

During fiscal 2022 and 2021, Forestar’s land and lot sales, including the portion sold to D.R.

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Tract acres sold to D.R.

Horton 85 143

Tract sales revenues from sales to D.R.

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Loss on extinguishment of debt of $18.1 million in fiscal 2021 was due to Forestar’s redemption of its $350 million principal amount of 8.0% senior notes due 2024 in May 2021.

At September 30, 2021, Forestar owned directly or controlled through land and lot purchase contracts 97,000 residential lots, of which approximately 5,300 are fully developed.

At September 30, 2022, Forestar owned directly or controlled through land and lot purchase contracts approximately 90,100 residential lots, of which 5,500 are fully developed.

Approximately 36,700 of these lots are under contract to sell to D.R.

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

Approximately 800 of these lots are under contract to sell to other builders.

Horton, and 1,400 of these lots are under contract to sell to other builders.

Results of Operations — Financial Services

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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 fiscal 2021, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 23% from the prior year due to a 25% increase in the number of homes closed by our homebuilding operations.

Homes closed by our homebuilding operations constituted 98% and 97% of DHI Mortgage loan originations in fiscal 2021 and 2020, respectively.

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

In fiscal 2022, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 5% from the prior year 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 98% of DHI Mortgage loan originations in both fiscal 2022 and 2021.

This percentage reflects DHI Mortgage’s consistent focus on the captive business provided by our homebuilding operations.

The number of loans sold increased 4% in fiscal 2022 compared to the prior year.

Virtually all of the mortgage loans held for sale on September 30, 2022 were eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae.

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.

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

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.

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

Financial Services Revenues and Expenses

Revenues from our mortgage operations increased 41% to $670.8 million in fiscal 2021 from $476.7 million in fiscal 2020, primarily due to a 22% increase in loan originations and higher net gains achieved on the sale of loan originations in the secondary market.

Revenues from our title operations increased 41% to $152.8 million in fiscal 2021 from $108.2 million in fiscal 2020, primarily due to a 30% increase in escrow closings.

Revenues from our mortgage operations decreased 8% to $617.4 million in fiscal 2022 from $670.8 million in fiscal 2021, primarily due to a more competitive environment in the mortgage industry due to rising interest rates.

Revenues from our title operations increased 16% to $177.6 million in fiscal 2022 from $152.8 million in fiscal 2021, primarily due to an increase in the average premium collected on closing transactions from 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 12% to $547.6 million in fiscal 2022 from $488.3 million in the prior year.

The increase was primarily due to an increase in employee related costs to support a higher volume of transactions.

Our financial services operations employed 2,891 and 2,163 people at September 30, 2021 and 2020, respectively.

As a percentage of financial services revenues, G&A expense was 68.9% in fiscal 2022 compared to 59.3% in the prior year.

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 3,024 and 2,891 people at September 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 increase from a higher volume of mortgage originations and escrow closings and better leverage of our G&A expenses, pre-tax income from our financial services operations increased 49% to $364.6 million in fiscal 2021 from $245.2 million in fiscal 2020.

Primarily as a result of the reduction in revenue and operating margin of our mortgage operations, pre-tax income from our financial services operations decreased 20% to $290.6 million in fiscal 2022 from $364.6 million in fiscal 2021.

Results of Operations — Rental

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

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

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

The single-family rental operations construct single-family rental homes with the intent to later market the community for a bulk sale of homes.

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 within a community 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.

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Single-family rental $ 313.8 $ 75.9

Multi-family rental 191.9 128.5

Multi-family rental and other 196.4 191.9

Total revenues 510.2 267.8

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Single-family rental 147.8 42.4

Multi-family rental 119.1 69.0

Multi-family rental and other 96.4 119.1

Total cost of sales 244.2 161.5

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Income before income taxes $ 202.0 $ 86.5

During fiscal 2021, we sold three multi-family rental properties for $191.9 million (960 total units) compared to two properties (540 total units) in fiscal 2020 for $128.5 million.

During fiscal 2021, we sold three single-family rental properties (260 total homes) for $75.9 million.

There were no bulk sales of single-family rental properties in fiscal 2020.

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

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

These 16 communities represent 4,690 multi-family units, including 4,340 units under active construction and 350 completed units.

At September 30, 2021, our single-family rental properties (55 total communities) included 2,650 homes and finished lots, of which 865 homes were completed.

At September 30, 2020, our rental property inventory of $316.0 million included $229.9 million of assets related to our multi-family rental operations and $86.1 million of assets related to our single-family rental operations.

At September 30, 2020, we had five multi-family rental properties under active construction and one community that was substantially complete and in the lease-up phase.

These six communities represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units.

At September 30, 2020, our single-family rental properties (10 total communities) included 740 homes and finished lots, of which 440 homes were completed.

At September 30, 2022, our rental property inventory of $2.6 billion included $1.7 billion of inventory related to our single-family rental operations and $897.2 million of inventory related to our multi-family rental operations.

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

During fiscal 2022, we sold 774 single-family rental homes for $313.8 million compared to 257 homes sold for $75.9 million in fiscal 2021.

At September 30, 2022, we had single-family rental properties consisting of 7,400 homes, of which 3,530 were completed, and 6,680 lots, of which 1,770 were finished.

At September 30, 2021, we had single-family rental properties consisting of 1,895 homes, of which 895 homes were completed, and 3,930 lots, of which 760 were finished.

During fiscal 2022, we sold 775 multi-family rental units for $195.5 million compared to 959 units sold for $191.9 million in fiscal 2021.

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

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

Results of Operations — Other Businesses

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 pre-tax income of all of our subsidiaries engaged in other business activities was $58.1 million in fiscal 2022 compared to $32.7 million in fiscal 2021.

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.

Results of Operations — Consolidated

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Pre-tax income was $7.6 billion in fiscal 2022 compared to $5.4 billion in fiscal 2021.

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 home closings and an increase in home sales gross margin.

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.

In fiscal 2022, our homebuilding, financial services, Forestar and rental businesses generated pre-tax income of $6.9 billion, $290.6 million, $235.8 million and $202.0 million, respectively, compared to $4.8 billion, $364.6 million, $146.6 million and $86.5 million, respectively, in fiscal 2021.

Our income tax expense was $1.2 billion and $602.5 million in fiscal 2021 and 2020, respectively, and our effective tax rate was 21.8% and 20.2% in those years.

The effective tax rates in fiscal 2021 and 2020 include an expense for state income taxes, tax benefits related to stock-based compensation and a reduction of 2.2% and 3.1%, respectively, for tax benefits related to the federal energy efficient homes tax credit.

Our effective tax rate for fiscal 2020 also includes a reduction of 0.4% for a tax benefit related to the release of a valuation allowance against our state deferred tax assets.

Our income tax expense was $1.7 billion and $1.2 billion in fiscal 2022 and 2021, respectively, and our effective tax rate was 22.7% and 21.8% in those years.

The effective tax rates for both years include an expense for state income taxes and tax benefits related to stock-based compensation and federal energy efficient homes tax credits.

The federal energy efficient homes tax credit was retroactively extended to qualifying homes closed from January 1, 2022 through December 31, 2032 as a result of the enactment of the Inflation Reduction Act (IRA) that was signed into law on August 16, 2022.

Beginning with homes closed after December 31, 2022, the requirements to qualify for the energy efficient homes tax credit will be increased.

We are currently analyzing the impact of the increased requirements on our ability to qualify homes for the credit.

Other tax related provisions of the IRA, including the corporate alternative minimum tax, had no material impact on our financial statements and are not expected to have a material impact on our financial statements in the future.

Our deferred tax assets, net of deferred tax liabilities, were $159.0 million at September 30, 2022 compared to $159.5 million at September 30, 2021.

We have a valuation allowance of $4.2 million and $7.5 million at September 30, 2021 and 2020, respectively, related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized.

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.

We have a valuation allowance of $17.9 million and $4.2 million at September 30, 2022 and 2021, respectively, related to deferred tax assets for state net operating loss (NOL), state capital loss and tax credit carryforwards that are expected to expire before being realized.

Of the $17.9 million valuation allowance, $15.8 million relates to state NOL, state capital loss and tax credit carryforwards acquired in the Vidler acquisition.

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, state capital loss and tax credit carryforwards.

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

We have $30.9 million of tax benefits for a federal NOL carryforward acquired in the Vidler acquisition.

The utilization of the federal NOL is subject to IRC Section 382 limitations;

however, it is expected that all of the federal NOL will be utilized within the carryforward period.

Horton has $12.0 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction.

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Unrecognized tax benefits are the differences between tax positions taken or expected to be taken in a tax return and the benefits recognized in our financial statements.

Our unrecognized tax benefits totaled $2.9 million and $8.9 million at September 30, 2021 and 2020, respectively.

Our unrecognized tax benefits totaled $2.9 million at both September 30, 2022 and 2021.

Horton is subject to federal income tax and state income tax in multiple jurisdictions.

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Horton’s major tax jurisdictions remains open for examination for fiscal years 2018 through 2022.

A federal refund claim related to the retroactive extension of energy efficient homes tax credits for fiscal year 2018 is currently under audit by the Internal Revenue Service.

Horton is under audit by various states, however, we are not aware of any significant findings by the state taxing authorities.

An audit by the Internal Revenue Service of a federal refund claim related to the retroactive extension of energy efficient homes tax credits for fiscal 2018 and additional energy efficient tax credits for fiscal 2017 was completed during the current fiscal year with no material adjustments.

Horton is under audit by various states;

however, we are not aware of any significant findings by the state taxing authorities.

Forestar is subject to federal income tax and state income tax in multiple jurisdictions.

The statute of limitations for Forestar’s major tax jurisdictions remains open for examination for tax years 2016 through 2021.

The statute of limitations for Forestar’s federal income tax remains open for examination for tax years 2019 through 2022.

The statute of limitations for Forestar’s major state tax jurisdictions generally remain open for examination for tax years 2017 through 2022.

Forestar is not currently under audit for federal or state income taxes.

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

During fiscal 2021 and currently, we have and continue to increase our investments in homebuilding inventories and single-family and multi-family rental properties to expand our operations and grow our revenues and profitability, as well as consider opportunistic strategic investments as they may arise.

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

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

In the last two fiscal years, we have maintained higher homebuilding cash balances than in prior years to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

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.

At September 30, 2022, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $6.1 billion, of which $2.5 billion is payable within 12 months and includes $1.6 billion outstanding under the mortgage repurchase facility.

Future interest payments associated with the notes total $507.6 million, of which $215.8 million is payable within 12 months.

At September 30, 2022, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 23.8% compared to 26.7% at September 30, 2021.

Our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 17.8% compared to 17.5% at September 30, 2020.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 15.4% at September 30, 2022 compared to 12.9% at September 30, 2021.

At September 30, 2022, our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 13.2% compared to 17.8% at September 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 4.4% at September 30, 2022 compared to 1.7% at September 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% throughout 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.

As of September 30, 2021, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $5.4 billion, with $1.9 billion payable within 12 months.

Future interest payments associated with the notes total $451.4 million, with $156.4 million payable within 12 months.

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 September 30, 2022, we had outstanding letters of credit of $273.3 million and surety bonds of $2.8 billion, issued by third parties to secure performance under various contracts.

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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 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 September 2018, registering $500 million of equity securities.

At September 30, 2021, $359.9 million remained available under Forestar’s shelf registration statement, of which $65.6 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 registration statement.

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.

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 September 30, 2022, cash and cash equivalents of our homebuilding segment totaled $2.0 billion.

Bank Credit Facilities — In April 2021, our senior unsecured homebuilding revolving credit facility was amended to increase its capacity to $2.19 billion with an uncommitted accordion feature that could increase the size of the facility to $3.0 billion, subject to certain conditions and availability of additional bank commitments.

The maturity date of the facility was extended to April 20, 2026.

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

Bank Credit Facility — We have a $2.19 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $3.0 billion, subject to certain conditions and availability of additional bank commitments.

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

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

The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or London Interbank Offered Rate (LIBOR) plus an applicable margin, as defined in the credit agreement governing the facility.

Borrowings and repayments under the facility totaled $3.45 billion each during fiscal 2022.

At September 30, 2022, there were no borrowings outstanding and $220 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $1.97 billion.

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

In October 2022, our senior unsecured homebuilding revolving credit facility was amended to extend its maturity date to October 28, 2027.

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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At September 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 September 30, 2021 that mature from September 2022 through October 2027.

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

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

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

In August 2021, we issued $600 million principal amount of 1.3% senior notes due October 15, 2026, with interest payable semi-annually.

The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 1.5%.

Public Unsecured Debt — We have $2.8 billion principal amount of homebuilding senior notes outstanding as of September 30, 2022 that mature from February 2023 through October 2027.

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

At September 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.

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

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

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

During fiscal 2021, we repurchased 10.4 million shares of our common stock for $874.0 million.

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 fiscal 2022, we repurchased 14.0 million shares of our common stock for $1.1 billion.

At September 30, 2022, the full amount of the debt repurchase authorization was remaining, and $438.3 million of the stock repurchase authorization was remaining.

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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 sufficient cash flows from operations.

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.

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Cash and Cash Equivalents — At September 30, 2022, Forestar had cash and cash equivalents of $264.8 million.

Bank Credit Facility — In April 2021, Forestar’s senior unsecured revolving credit facility was amended to increase its capacity to $410 million with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments.

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

The facility also provides for the issuance of letters of credit with a sublimit

equal to the greater of $100 million and 50% of the revolving credit commitment.

Borrowings under the revolving credit facility are subject to a borrowing base calculation based on Forestar’s book value of its real estate assets and unrestricted cash.

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

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

Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of Forestar’s real estate assets and unrestricted cash.

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

Borrowings and repayments under the facility totaled $58.0 million each during fiscal 2021.

At September 30, 2022, there were no borrowings outstanding and $53.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $356.7 million.

In October 2022, Forestar’s senior unsecured revolving credit facility was amended to extend its maturity date to October 28, 2026.

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

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Unsecured Debt — As of September 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 issued in April 2021 that mature May 15, 2026 with interest payable semiannually.

The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 4.1%.

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

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

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

Forestar also has $300 million principal amount of 5.0% senior notes that mature March 1, 2028.

The annual effective interest rate of the notes after giving effect to the amortization of financing costs is 5.2%.

Forestar’s senior notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreements.

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

or any of the subsidiaries that guarantee our homebuilding debt.

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

Forestar’s revolving credit facility and its senior notes are guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

They are not guaranteed by D.R.

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

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

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 September 30, 2022, and the authorization has no expiration date.

Issuance of Common Stock — During fiscal 2021, Forestar issued 1.4 million shares of common stock under its at-the-market equity offering program for proceeds of $33.4 million, net of commissions and other issuance costs.

Issuance of Common Stock — During fiscal 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.

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

Capital Resources - Financial Services

Cash and Cash Equivalents — At September 30, 2021, cash and cash equivalents of our financial services operations totaled $79.0 million.

Cash and Cash Equivalents — At September 30, 2022, cash and cash equivalents of our financial services segment totaled $103.3 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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The mortgage repurchase facility is not guaranteed by D.R.

or any of the subsidiaries that guarantee our homebuilding debt.

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

The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity.

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Capital Resources - Rental

Cash and Cash Equivalents — At September 30, 2021, cash and cash equivalents of our rental operations segment totaled $16.8 million.

During fiscal 2021, we substantially increased the investment in our rental operations.

The inventory in our rental segment totaled $840.9 million at September 30, 2021 compared to $316.0 million at September 30, 2020.

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

Our rental operations had no debt outstanding at September 30, 2021;

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

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

Cash and Cash Equivalents — At September 30, 2022, cash and cash equivalents of our rental segment totaled $109.9 million.

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

The inventory in our rental segment totaled $2.6 billion at September 30, 2022 compared to $840.9 million at September 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.

On subsequent occasions, DRH Rental utilized the accordion feature to obtain additional commitments, thereby increasing the size of the facility to $975 million at September 30, 2022.

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

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.

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

At September 30, 2022, there were $800 million of borrowings outstanding at a 4.8% annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $11.9 million.

In November 2022, DRH Rental utilized the accordion feature and increased the size of the revolving credit facility to $1.025 billion through an additional commitment.

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

The financial covenants require DRH Rental to maintain a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio.

These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly.

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

At September 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 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.

Operating Cash Flow Activities

In fiscal 2021, net cash provided by operating activities was $534.4 million compared to $1.4 billion in fiscal 2020.

Cash provided by operating activities in the current year consisted of $1.2 billion of cash provided by our homebuilding segment, which was partially offset by cash used in our Forestar, financial services and rental segments.

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

Cash used to increase construction in progress and finished home inventory was $1.7 billion in fiscal 2021 compared to $739.1 million in fiscal 2020.

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

Cash used to increase residential land and lots was $1.7 billion in fiscal 2021 compared to $324.4 million in fiscal 2020.

In fiscal 2022, net cash provided by operating activities was $561.8 million compared to $534.4 million in fiscal 2021.

Cash provided by operating activities in the current year primarily consisted of $1.9 billion and $108.7 million of cash provided by our homebuilding and Forestar segments, respectively, partially offset by $1.4 billion and $10.5 million of cash used in our rental and financial services segments, respectively.

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

Cash used to increase construction in progress and finished home inventory was $2.1 billion in fiscal 2022 compared to $1.7 billion in fiscal 2021.

The increase is due to increased home construction costs and more homes in inventory that were complete or closer to completion at the end of the current year.

Cash used to increase residential land and lots was $1.4 billion in fiscal 2022 compared to $1.7 billion in fiscal 2021.

Of these amounts, $142.3 million and $585.6 million, respectively, related to Forestar.

During the six months ended September 30, 2021, we increased our single-family and multi-family rental properties by $303.6 million, which is reflected as cash used in operating activities.

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

During the six month period ended March 31, 2021 and in fiscal 2020, expenditures related to rental properties were $173.9 million and $190.3 million, respectively, and are reflected as cash used in investing activities.

During fiscal 2022, cash used to increase our single-family and multi-family rental properties totaled $1.7 billion and is reflected as cash used in operating activities.

During fiscal 2021, cash used to increase our single-family and multi-family rental properties totaled $477.5 million, of which $173.9 million related to the first half of the year and is presented as cash used in investing activities and $303.6 million related to the second half of the year and is presented as cash used in operating activities.

Investing Cash Flow Activities

In fiscal 2022, net cash used in investing activities was $414.9 million compared to $252.2 million in fiscal 2021.

In fiscal 2021, uses of cash included expenditures related to our rental operations totaling $173.9 million, purchases of property and equipment totaling $93.5 million and the acquisition of the homebuilding operations of Braselton Homes for $23.0 million, partially offset by proceeds from the sale of a single-family rental community for $31.8 million in the first quarter of fiscal 2021.

In fiscal 2020, uses of cash included expenditures related to our rental operations totaling $190.3 million and purchases of property and equipment totaling $96.5 million, partially offset by proceeds from the sale of assets, primarily consisting of $128.5 million related to the sale of two multi-family rental properties.

In fiscal 2022, 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 $148.2 million.

In fiscal 2021, 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 $93.5 million, partially offset by proceeds from the sale of a single-family rental community for $31.8 million.

Financing Cash Flow Activities

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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.

In fiscal 2021, net cash used in financing activities was $85.1 million, consisting primarily of repayment of $400 million principal amount of our 2.55% homebuilding senior notes at maturity, Forestar’s early redemption of its $350 million principal amount of 8.0% senior notes, cash used to repurchase shares of our common stock of $848.4 million and payment of cash dividends totaling $289.3 million.

In fiscal 2022, net cash used in financing activities was $811.2 million, consisting primarily of repayments of amounts drawn on our homebuilding revolving credit facility totaling $3.5 billion, cash used to repurchase shares of our common stock of $1.1 billion, repayment of $350 million principal amount of our 4.375% homebuilding senior notes at maturity and payment of cash dividends totaling $316.5 million.

These uses of cash were partially offset by draws on our homebuilding revolving credit facility of $3.5 billion, draws on DRH Rental’s revolving credit facility of $800 million and net advances on our mortgage repurchase facility of $123.7 million.

In fiscal 2021, net cash used in financing activities was $85.1 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 $848.4 million and payment of cash dividends totaling $289.3 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 $600 million principal amount of 1.3% homebuilding senior notes, Forestar’s issuance of $400 million principal amount of 3.85% senior notes and net advances of $362.0 million on our mortgage repurchase facility.

In fiscal 2020, net cash provided by financing activities was $270.6 million, consisting primarily of note proceeds of $1.1 billion from draws on our homebuilding revolving credit facility, our issuance of $500 million principal amount of 2.5% homebuilding senior notes, our issuance of $500 million principal amount of 2.6% homebuilding senior notes, Forestar’s issuance of $300 million principal amount of 5.0% senior notes and net advances of $243.7 million on our mortgage repurchase facility.

Note proceeds were partially offset by repayment of amounts drawn on our homebuilding revolving credit facility totaling $1.1 billion, repayment of $500 million principal amount of our 4.0% homebuilding senior notes at maturity, Forestar’s repayment of $118.9 million principal amount of its 3.75% convertible senior notes at maturity, cash used to repurchase shares of our common stock of $360.4 million and payment of cash dividends totaling $256.0 million.

Our Board of Directors approved and paid quarterly cash dividends of $0.225 per common share in fiscal 2022 and $0.20 per common share in fiscal 2021.

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Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by D.R.

Our subsidiaries associated with the Forestar lot development operations, financial services operations, multi-family residential construction and certain other subsidiaries do not guarantee the homebuilding senior notes or the homebuilding revolving credit facility (collectively, Non-Guarantor Subsidiaries).

Our subsidiaries associated with the Forestar lot development operations, financial services operations, multi-family and single-family rental operations and certain other subsidiaries do not guarantee the homebuilding senior notes or the homebuilding revolving credit facility (collectively, Non-Guarantor Subsidiaries).

The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor.

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

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

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

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

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

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

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Net income 5,372.7

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

(i) such guarantee was incurred with fraudulent intent;

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

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

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

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

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

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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Horton are eliminated in the consolidated financial statements.

We rarely purchase unimproved land for resale, but periodically may elect to sell parcels of land that no longer fit into our strategic operating plans.

We rarely purchase unimproved land for resale, but periodically may elect to sell parcels of land that do not fit into our strategic operating plans.

Revenue from land sales is typically recognized on the closing date, which is generally when performance obligations are satisfied.

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Due to the high degree of judgment required in establishing reserves for these contingencies, actual future costs and recoveries from insurance could differ significantly from current estimated amounts.

A 10% increase in the claim frequency and the average cost per claim used to estimate the reserves would result in an increase of approximately $101.7 million in our reserves and a $50.9 million increase in our receivable, resulting in additional expense of $50.8 million.

A 10% decrease in the claim frequency and the average cost per claim would result in a decrease of approximately $91.8 million in our reserves and a $43.8 million decrease in our receivable, resulting in a reduction in expense of $48.0 million.

A 10% increase in the claim frequency and the average cost per claim used to estimate the reserves would result in an increase of approximately $133.8 million in our reserves and a $46.9 million increase in our insurance receivable, resulting in additional expense of $86.9 million.

A 10% decrease in the claim frequency and the average cost per claim would result in a decrease of approximately $120.4 million in our reserves and a $49.5 million decrease in our insurance receivable, resulting in a reduction in expense of $70.9 million.

For additional information regarding our legal claims reserves, see Note L, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this report.

Pending Accounting Pronouncements

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

The guidance is effective for us beginning October 1, 2021 and is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

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

Pending Accounting Standards

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

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

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

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

We are currently evaluating the impact of this guidance on our consolidated financial position, results of operations and cash flows.

The guidance is effective for us beginning October 1, 2023, with early adoption permitted.

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

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-K

Item 7. Management’s Discussion and Analysis