What changed in this filing

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Item 1. Financial Statements

2023-01-25 compared with 2022-07-22 · 128 added, 313 removed, 543 unchanged (45% of the section changed)

14 unchanged sentences

Mortgage loans held for sale 1,782.7 2,386.0

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

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

Deferred income taxes, net of valuation allowance of $ 17.9 million

at December 31, 2022 and September 30, 2022

Property and equipment, net 501.7 471.6

9 unchanged sentences

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 399,882,765 shares issued

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

and 343,278,561 shares outstanding at December 31, 2022 and 399,172,937 shares issued

and 343,953,023 shares outstanding at September 30, 2022

1 unchanged sentence

Retained earnings 20,057.9 19,185.3

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

Treasury stock, 56,604,204 shares and 55,219,914 shares at December 31, 2022

and September 30, 2022, respectively, at cost

8 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

(In millions, except per share data)

2 unchanged sentences

Selling, general and administrative expense 737.0 665.9

Gain on sale of assets — — — ( 14.0 )

Loss on extinguishment of debt — 18.1 — 18.1

Other (income) expense ( 37.7 ) ( 15.5 )

36 unchanged sentences

$ 4.0 $ 3,352.0 $ 20,057.9 $ ( 3,260.6 ) $ 399.1 $ 20,552.4

Net income — — 1,436.3 — 6.0 1,442.3

Exercise of stock options ( 4,533 shares)

— 0.1 — — — 0.1

Stock issued under employee benefit plans ( 773,301 shares)

— 4.9 — — — 4.9

Cash paid for shares withheld for taxes — ( 28.7 ) — — — ( 28.7 )

Stock-based compensation expense — 30.9 — — — 30.9

Cash dividends declared ($ 0.225 per share)

— — ( 79.1 ) — — ( 79.1 )

Repurchases of common stock ( 3,100,000 shares)

— — — ( 266.0 ) — ( 266.0 )

Change of ownership interest in Forestar — ( 1.2 ) — — 1.2 —

Balances at March 31, 2022 ( 351,955,435 shares)

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

Net income — — 1,647.8 — 11.5 1,659.3

Exercise of stock options ( 25,725 shares)

— 0.6 — — — 0.6

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

— 4.1 — — — 4.1

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

Stock-based compensation expense — 24.8 — — — 24.8

Cash dividends declared ($ 0.225 per share)

— — ( 79.2 ) — — ( 79.2 )

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

— — — ( 310.0 ) — ( 310.0 )

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

Noncontrolling interest acquired — — — — 18.2 18.2

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

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

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Continued)

Stock Additional

17 unchanged sentences

— — — ( 278.2 ) — ( 278.2 )

Distributions to noncontrolling interests — — — — ( 0.1 ) ( 0.1 )

Change of ownership interest in Forestar — — — — 1.8 1.8

1 unchanged sentence

$ 4.0 $ 3,282.7 $ 14,705.8 $ ( 2,314.8 ) $ 335.7 $ 16,013.4

Net income — — 929.5 — 4.4 933.9

Exercise of stock options ( 391,047 shares)

— 1.4 — — — 1.4

Stock issued under employee benefit plans ( 916,209 shares)

— 3.2 — — — 3.2

Cash paid for shares withheld for taxes — ( 56.6 ) — — — ( 56.6 )

Stock-based compensation expense — 25.4 — — — 25.4

Cash dividends declared ($ 0.20 per share)

— — ( 72.7 ) — — ( 72.7 )

Repurchases of common stock ( 4,475,624 ) shares)

— — — ( 350.4 ) — ( 350.4 )

Change of ownership in Forestar and other — ( 1.9 ) — — 23.4 21.5

Balances at March 31, 2021 ( 360,479,511 shares)

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

Net income — — 1,115.5 — 1.0 1,116.5

Exercise of stock options ( 152,119 shares)

— 1.4 — — — 1.4

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

— 8.5 — — — 8.5

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

Stock-based compensation expense — 22.6 — — — 22.6

Cash dividends declared ($ 0.20 per share)

— — ( 72.1 ) — — ( 72.1 )

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

— — — ( 241.2 ) — ( 241.2 )

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

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

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended June 30,

Three Months Ended December 31,

(In millions)

1 unchanged sentence

Net income $ 968.3 $ 1,145.8

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 19.8 19.4

2 unchanged sentences

Inventory and land option charges 27.5 4.8

Gain on sale of assets — ( 14.0 )

Loss on extinguishment of debt — 18.1

Changes in operating assets and liabilities:

Increase in construction in progress and finished homes ( 3,063.9 ) ( 1,739.7 )

Decrease (increase) in construction in progress and finished homes 320.7 ( 1,003.7 )

Increase in residential land and lots –

2 unchanged sentences

Increase in rental properties ( 357.0 ) ( 319.5 )

Increase in other assets ( 777.3 ) ( 368.2 )

Increase in mortgage loans held for sale ( 55.2 ) ( 115.1 )

Increase in accounts payable, accrued expenses and other liabilities 1,036.4 735.7

Net cash used in operating activities ( 562.8 ) ( 34.5 )

Decrease (increase) in other assets 330.2 ( 221.8 )

Decrease in mortgage loans held for sale 603.3 194.0

(Decrease) increase in accounts payable, accrued expenses and other liabilities ( 472.3 ) 306.2

Net cash provided by (used in) operating activities 829.1 ( 174.1 )

INVESTING ACTIVITIES

Expenditures for property and equipment ( 47.5 ) ( 30.9 )

Proceeds from sale of assets — 37.6

Expenditures related to rental properties — ( 173.9 )

Payments related to business acquisitions, net of cash acquired ( 97.1 ) —

13 unchanged sentences

Net cash used in financing activities ( 646.6 ) ( 572.0 )

Net decrease in cash, cash equivalents and restricted cash ( 1,552.9 ) ( 1,071.0 )

Net increase (decrease) in cash, cash equivalents and restricted cash 39.6 ( 772.6 )

Cash, cash equivalents and restricted cash at beginning of period 2,572.9 3,237.2

3 unchanged sentences

Stock issued under employee incentive plans $ 46.9 $ 66.2

Repurchase of common stock not settled $ 20.1 $ —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2022

December 31, 2022

NOTE A – BASIS OF PRESENTATION

2 unchanged sentences

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

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

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

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

4 unchanged sentences

These financial statements, including the consolidated balance sheet as of September 30, 2022, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2022 .

Reclassifications

During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment and realigned the aggregation of its homebuilding operating segments into six new reportable segments to better allocate its homebuilding operating segments across geographic reporting regions.

The prior year presentation of the Company’s segment information in Note B and in Management’s Discussion and Analysis of Financial Condition and Results of Operations has been conformed to the current presentation.

Use of Estimates

3 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

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

AND SUBSIDIARIES

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

June 30, 2022

therefore, the operating results for the three months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023 or subsequent periods.

Business Acquisition

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

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

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

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

Cash and cash equivalents $ 19.0

Property and equipment 30.1

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

Intangible and other assets (1)

Total assets 316.4

Other liabilities 7.7

Total liabilities 7.7

Noncontrolling interest 18.2

Net assets acquired $ 290.5

_____________________________________

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

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

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

In December 2022, the Company acquired the homebuilding operations of Riggins Custom Homes in Northwest Arkansas for approximately $ 107 million in cash.

The assets acquired included approximately 170 homes in inventory, 3,000 lots and a sales order backlog of approximately 100 homes.

The Company expects to complete the purchase price allocation in the second quarter of fiscal 2023 and does not expect to record any goodwill associated with this acquisition.

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.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance.

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

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

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

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.

3 unchanged sentences

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

June 30, 2022

December 31, 2022

NOTE B – SEGMENT INFORMATION

2 unchanged sentences

The Company’s reporting segments are its homebuilding reporting segments, its Forestar lot development segment, its financial services segment and its rental operations segment.

During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment to reflect the method by which the chief operating decision makers manage the business, evaluate internal results and allocate financial resources.

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

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

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

The homebuilding operating segments are aggregated into six reporting segments.

The reporting segments and the states in which the Company has homebuilding operations are as follows:

Colorado, Oregon, Utah and Washington

16 unchanged sentences

The Company sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers.

AND SUBSIDIARIES

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

June 30, 2022

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

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

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

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.

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

3 unchanged sentences

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

June 30, 2022

December 31, 2022

The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2022.

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

June 30, 2022

December 31, 2022

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

27 unchanged sentences

______________

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

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

1 unchanged sentence

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

June 30, 2022

December 31, 2022

September 30, 2022

28 unchanged sentences

______________

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

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

AND SUBSIDIARIES

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

June 30, 2022

Three Months Ended June 30, 2022

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

(In millions)

$ 8,336.4 $ — $ — $ — $ — $ 8,336.4

Land/lot sales and other 11.4 308.5 — — ( 232.2 ) 87.7

Rental property sales — — — 109.7 — 109.7

Financial services

— — 254.3 — — 254.3

8,347.8 308.5 254.3 109.7 ( 232.2 ) 8,788.1

Cost of sales

Home sales (3) 5,826.8 — — — ( 52.5 ) 5,774.3

Land/lot sales and other 7.3 233.6 — — ( 197.4 ) 43.5

Rental property sales — — — 50.9 — 50.9

Inventory and land option charges

9.5 1.0 — 0.1 — 10.6

5,843.6 234.6 — 51.0 ( 249.9 ) 5,879.3

Selling, general and administrative expense

553.2 24.1 137.3 22.8 3.2 740.6

Other (income) expense ( 3.7 ) ( 2.9 ) ( 11.3 ) ( 6.7 ) 9.5 ( 15.1 )

Income before income taxes $ 1,954.7 $ 52.7 $ 128.3 $ 42.6 $ 5.0 $ 2,183.3

______________

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

(2) Amounts include the results of the Company’s other businesses and the elimination of intercompany transactions.

(3) Amount in the Eliminations and Other column represents the recognition of profit on lots sold from Forestar to the homebuilding segment.

Intercompany profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.

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

AND SUBSIDIARIES

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

June 30, 2022

Nine Months Ended June 30, 2022

December 31, 2022

Three Months Ended December 31, 2022

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

22 unchanged sentences

______________

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

(1) Amounts include the results of the Company’s other businesses and the elimination of intercompany transactions.

3 unchanged sentences

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

June 30, 2022

Three Months Ended June 30, 2021

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

(In millions)

$ 7,040.1 $ — $ — $ — $ — $ 7,040.1

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

Rental property sales — — — 23.1 ( 23.1 ) —

Financial services

— — 188.7 — — 188.7

7,047.2 312.9 188.7 23.1 ( 287.3 ) 7,284.6

Cost of sales

Home sales (3) 5,219.2 — — — ( 40.0 ) 5,179.2

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

Rental property sales — — — 11.7 ( 11.7 ) —

Inventory and land option charges

4.9 0.7 — — — 5.6

5,226.8 257.1 — 11.7 ( 283.0 ) 5,212.6

Selling, general and administrative expense

500.7 16.9 127.0 8.8 2.3 655.7

Loss on extinguishment of debt — 18.1 — — — 18.1

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

Income before income taxes $ 1,324.6 $ 21.1 $ 70.3 $ 9.9 $ ( 10.3 ) $ 1,415.6

______________

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

(2) Amounts include the results of the Company’s other businesses, reconciling amounts between segment and consolidated balances and the elimination of intercompany transactions.

(3) Amount in the Eliminations and Other column represents the recognition of profit on lots sold from Forestar to the homebuilding segment.

AND SUBSIDIARIES

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

June 30, 2022

Nine Months Ended June 30, 2021

December 31, 2022

Three Months Ended December 31, 2021

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

2 unchanged sentences

Land/lot sales and other 23.0 407.6 — — ( 374.4 ) 56.2

40.5 907.1 — — ( 793.0 ) 154.6

Rental property sales — — — 156.5 — 156.5

5 unchanged sentences

Land/lot sales and other 17.1 333.6 — — ( 317.7 ) 33.0

29.0 752.2 — — ( 695.8 ) 85.4

Rental property sales — — — 72.5 ( 0.8 ) 71.7

4 unchanged sentences

497.7 21.5 125.3 18.5 2.9 665.9

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

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 6.2 ) ( 1.6 ) ( 8.1 ) ( 4.9 ) 5.3 ( 15.5 )

3 unchanged sentences

$ 15.4 $ 0.5 $ 0.4 $ 0.1 $ 3.0 $ 19.4

Cash provided by (used in) operating activities

$ 450.7 $ ( 340.6 ) $ 96.2 $ ( 405.6 ) $ 164.8 $ ( 34.5 )

Cash (used in) provided by operating activities $ ( 114.7 ) $ 5.8 $ 247.5 $ ( 255.9 ) $ ( 56.8 ) $ ( 174.1 )

______________

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

(2) Amounts include the results of the Company’s other businesses, reconciling amounts between segment and consolidated balances and the elimination of intercompany transactions.

(1) Amounts include the results of the Company’s other businesses and the elimination of intercompany transactions.

(2) Amount in the Eliminations and Other column represents the recognition of profit on lots sold from Forestar to the homebuilding segment.

2 unchanged sentences

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

June 30, 2022

December 31, 2022

Homebuilding Inventories by Reporting Segment (1)

13 unchanged sentences

Homebuilding Results by Reporting Segment Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

(In millions)

16 unchanged sentences

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

June 30, 2022

December 31, 2022

NOTE C – INVENTORIES

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

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

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

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

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

As of December 31, 2022, the Company performed detailed impairment evaluations of communities and land inventories and determined that communities with a combined carrying value of $ 66.7 million were impaired.

As a result, impairment charges of $ 4.8 million were recorded during the three months ended December 31, 2022 to reduce the carrying value of the related inventory to fair value.

There were no impairment charges recorded in the prior year period.

During the three months ended December 31, 2022, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 22.7 million compared to $ 4.8 million in the same period of fiscal 2022.

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

1 unchanged sentence

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

June 30, 2022

December 31, 2022

NOTE D – NOTES PAYABLE

9 unchanged sentences

1.4 % senior notes due 2027 (1)

Other secured notes 182.9 156.6

9 unchanged sentences

_____________

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

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

These intercompany notes are eliminated in consolidation.

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

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

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 11.2 million and $ 12.2 million at December 31, 2022 and September 30, 2022, respectively.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 6.1 million and $ 6.5 million at December 31, 2022 and September 30, 2022, respectively.

(3) The fair value of notes payable at December 31, 2022 totaled $ 5.4 billion, of which $ 3.2 billion were measured using Level 2 inputs and $ 2.2 billion were measured using Level 3 inputs.

The fair value of notes payable at September 30, 2022 totaled $ 5.7 billion, of which $ 3.1 billion were measured using Level 2 inputs and $ 2.6 billion were measured using Level 3 inputs.

1 unchanged sentence

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

June 30, 2022

December 31, 2022

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

1 unchanged sentence

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

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

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

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

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

At December 31, 2022, there were no borrowings outstanding and $ 214.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.98 billion.

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

2 unchanged sentences

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

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

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

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

The Company’s homebuilding revolving credit facility and homebuilding senior notes are guaranteed by D.R.

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

2 unchanged sentences

The authorization has no expiration date.

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

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

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

2 unchanged sentences

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

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

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

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

At December 31, 2022, there were no borrowings outstanding and $ 43.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 366.2 million.

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

4 unchanged sentences

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

June 30, 2022

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

December 31, 2022

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 the Company’s homebuilding, financial services or rental operations.

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

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

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

The authorization has no expiration date.

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

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

Financial Services

1 unchanged sentence

DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility.

In February 2022, the mortgage repurchase facility was amended to increase its capacity and extend its maturity date to February 17, 2023.

The total capacity of the facility is $ 1.6 billion;

however, the capacity automatically increases during certain higher volume periods and can be further increased through additional commitments.

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

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

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

The total capacity of the facility at December 31, 2022 was $ 1.8 billion, and its maturity date is February 17, 2023.

DHI Mortgage expects to renew and extend the maturity date of the facility.

As of December 31, 2022, $ 1.8 billion of mortgage loans held for sale with a collateral value of $ 1.7 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 526.3 million, DHI Mortgage had an obligation of $ 1.2 billion outstanding under the mortgage repurchase facility at December 31, 2022 at a 6.0 % annual interest rate.

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

2 unchanged sentences

These covenants are measured and reported to the lenders monthly.

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

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

On March 17, 2022, DRH Rental utilized the accordion feature and increased the size of the facility to $ 750 million through an additional commitment.

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

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

DRH Rental utilized the accordion feature to obtain additional commitments, which increased the size of the facility to $ 1.025 billion at December 31, 2022.

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

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.

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

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

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

Borrowings and repayments under the facility totaled $ 300 million each during the three months ended December 31, 2022.

At December 31, 2022, there were $ 800 million of borrowings outstanding at a 6.2 % annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $ 225 million.

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

2 unchanged sentences

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

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

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

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

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

AND SUBSIDIARIES

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

June 30, 2022

December 31, 2022

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 the Company’s homebuilding, Forestar or financial services operations.

NOTE E – CAPITALIZED INTEREST

2 unchanged sentences

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

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

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

During the first three months of fiscal 2023 and fiscal 2022, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

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

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

(In millions)

4 unchanged sentences

__________________

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

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

AND SUBSIDIARIES

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

June 30, 2022

(1) Interest incurred in the three months ended December 31, 2022 and 2021 includes interest on the Company's mortgage repurchase facility of $ 8.1 million and $ 4.0 million, respectively, and Forestar interest of $ 8.2 million and $ 8.1 million respectively.

Interest incurred in the three months ended December 31, 2022 also includes interest on DRH Rental’s revolving credit facility of $ 9.0 million.

NOTE F – MORTGAGE LOANS

2 unchanged sentences

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

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

At December 31, 2022, mortgage loans held for sale of $ 1.78 billion had an aggregate outstanding principal balance of $ 1.83 billion.

At September 30, 2022, mortgage loans held for sale of $ 2.39 billion had an aggregate outstanding principal balance of $ 2.51 billion.

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

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

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

During the three months ended December 31, 2022 and 2021, mortgage loans originated totaled $ 4.6 billion and $ 3.9 billion, respectively, and mortgage loans sold totaled $ 5.2 billion and $ 4.1 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 79.2 million during the three months ended December 31, 2022 compared to $ 134.1 million in the prior year period.

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

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

During the three months ended December 31, 2022, approximately 58 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 39 % were sold to one other major financial entity.

AND SUBSIDIARIES

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

December 31, 2022

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

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

At December 31, 2022 and September 30, 2022, the Company had mortgage-backed securities (MBS) totaling $ 970.8 million and $ 532.4 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded an asset of $ 1.2 million and $ 4.8 million, respectively, for the fair value of such MBS position.

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

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

At December 31, 2022 and September 30, 2022, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 2 inputs, totaled $ 2.6 billion and $ 4.0 billion, respectively.

NOTE G – INCOME TAXES

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

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

The effective tax rates for all periods include an expense for state income taxes and tax benefits related to stock-based compensation.

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

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

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

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

The Company’s income tax expense for the three months ended December 31, 2022 and 2021 was $ 298.9 million and $ 351.5 million, respectively.

The effective tax rate was 23.6 % for the three months ended December 31, 2022 compared to 23.5 % in the prior year period.

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

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 155.8 million at December 31, 2022 compared to $ 159.0 million at September 30, 2022.

The Company has a valuation allowance of $ 17.9 million at December 31, 2022 and September 30, 2022 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.

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

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

4 unchanged sentences

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

June 30, 2022

December 31, 2022

NOTE H – EARNINGS PER SHARE

The following table sets forth the numerators and denominators used in the computation of basic and diluted earnings per share.

The following table sets forth the computation of basic and diluted earnings per share.

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

(In millions)

13 unchanged sentences

The authorization has no expiration date.

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

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

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

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

During the three months ended December 31, 2022, the Company repurchased 1.4 million shares of its common stock for $ 118.1 million, and there was $ 320.2 million remaining on the repurchase authorization at December 31, 2022.

During the three months ended December 31, 2022, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, which was paid on December 12, 2022 to stockholders of record on December 2, 2022.

In January 2023, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, payable on February 14, 2023 to stockholders of record on February 7, 2023.

Cash dividends of $ 0.225 per common share were approved and paid in each quarter of fiscal 2022.

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

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

At June 30, 2022, $ 748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $ 298.2 million was reserved for sales under its at-the-market equity offering program.

During the three months ended December 31, 2022, there were no shares issued under Forestar’s ATM program.

At December 31, 2022, $ 748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $ 298.2 million was reserved for sales under its ATM program.

AND SUBSIDIARIES

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

June 30, 2022

December 31, 2022

NOTE J – EMPLOYEE BENEFIT PLANS

Restricted Stock Units (RSUs)

Stock-Based Compensation

The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors.

RSU awards may be based on performance (performance-based) or on service over a requisite time period (time-based).

Performance-based and time-based RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied.

Restricted stock unit (RSU) awards may be based on performance (performance-based) or on service over a requisite time period (time-based).

RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied.

The RSUs have no dividend or voting rights until vested.

In October 2022, the Company granted 600,000 performance-based RSUs to its executive officers.

In March 2022, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved an amendment and restatement of this award to increase the RSUs granted from 390,000 to 430,000 .

Also in March 2022, the Compensation Committee amended the executive officer short-term performance bonus plan to reduce the amount of the award that could be earned by four of its executive officers.

The 430,000 performance-based RSU equity awards vest at the end of a three -year performance period ending September 30, 2024.

These awards vest at the end of a three -year performance period ending September 30, 2025.

The number of units that ultimately vest depends on the Company’s relative position as compared to its peers in achieving certain performance criteria and can range from 0 % to 200 % of the number of units granted.

4 unchanged sentences

The grant date fair value of these equity awards was $ 79.97 per unit.

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

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

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

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

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

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

Compensation expense related to this grant was $ 4.5 million in the three months ended December 31, 2022 based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 21.1 million during the three months ended December 31, 2022 compared to $ 21.9 million during the three months ended December 31, 2021.

AND SUBSIDIARIES

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

June 30, 2022

December 31, 2022

NOTE K – COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

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

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

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

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

(In millions)

8 unchanged sentences

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

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

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

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

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

Nine Months Ended

The estimated liabilities for these contingencies were $ 748.5 million and $ 729.1 million at December 31, 2022 and September 30, 2022, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

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

Expenses related to the Company’s legal contingencies were $ 18.8 million and $ 12.9 million in the three months ended December 31, 2022 and 2021, respectively.

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

Three Months Ended

(In millions)

5 unchanged sentences

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

June 30, 2022

December 31, 2022

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

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

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

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 143.6 million, $ 137.9 million and $ 107.0 million at December 31, 2022, September 30, 2022 and December 31, 2021, respectively, and are included in other assets in the consolidated balance sheets.

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

6 unchanged sentences

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

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

At December 31, 2022, the Company had total deposits of $ 1.6 billion, consisting of cash deposits of $ 1.5 billion and promissory notes and surety bonds of $ 85.6 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 19.0 billion.

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

Of these amounts, $ 140.4 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $ 1.4 billion.

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

A limited number of the homebuilding land and lot purchase contracts at December 31, 2022, representing $ 98.6 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

Of the $ 98.6 million remaining purchase price subject to specific performance provisions, $ 66.5 million related to contracts between the homebuilding segment and Forestar.

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

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

During the three months ended December 31, 2022 and 2021, Forestar reimbursed the homebuilding segment $ 0.1 million and $ 2.7 million, respectively, for previously paid earnest money and $ 4.7 million and $ 21.6 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

Other Commitments

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

At December 31, 2022, the Company had outstanding surety bonds of $ 2.9 billion and letters of credit of $ 258.1 million to secure performance under various contracts.

Of the total letters of credit, $ 214.3 million were issued under the homebuilding revolving credit facility and $ 43.8 million were issued under Forestar’s revolving credit facility.

1 unchanged sentence

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

June 30, 2022

December 31, 2022

NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

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

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

2022 September 30,

1 unchanged sentence

Earnest money and refundable deposits $ 1,665.7 $ 1,685.7

Intangible and other assets related to Vidler acquisition 247.7 —

Insurance receivables 122.3 109.5

Mortgage hedging instruments and commitments 20.8 330.2

Water rights and other water-related assets related to Vidler acquisition 299.2 286.6

Other receivables 174.4 210.9

Insurance receivables 143.6 137.9

Prepaid assets 88.1 77.4

Contract assets - insurance agency commissions 75.8 74.3

Lease right of use assets 42.7 35.6

Interest rate lock commitments 33.2 47.7

Margin deposits related to hedging instruments 9.4 —

Lease right of use assets 46.6 46.6

Mortgage servicing rights 18.7 10.6

Mortgage hedging instruments and commitments 66.6 —

Other 45.4 52.4

$ 2,620.9 $ 2,960.3

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

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

2022 September 30,

3 unchanged sentences

Warranty liability 464.0 454.3

Customer deposits 279.9 193.4

Inventory related accruals 357.3 403.6

Broker deposits related to hedging instruments 16.3 240.9

Customer deposits 163.5 224.2

Interest rate lock commitments 9.3 183.5

Federal and state income tax liabilities 406.4 110.9

2 unchanged sentences

Accrued interest 31.8 33.8

Interest rate lock commitments 26.3 —

Mortgage hedging instruments and commitments 6.8 12.4

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements