What changed in this filing

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Item 1. Financial Statements

2023-07-24 compared with 2023-04-24 · 162 added, 120 removed, 653 unchanged (30% of the section changed)

14 unchanged sentences

Mortgage loans held for sale 2,414.4 2,386.0

Deferred income taxes, net of valuation allowance of $ 17.8 million and $ 17.9 million at March 31, 2023 and September 30, 2022, respectively

Deferred income taxes, net of valuation allowance of $ 17.8 million and $ 17.9 million at

June 30, 2023 and September 30, 2022, respectively

Property and equipment, net 425.3 471.6

9 unchanged sentences

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 401,104,823 shares issued

and 341,070,276 shares outstanding at March 31, 2023 and 399,172,937 shares issued

and 338,222,953 shares outstanding at June 30, 2023 and 399,172,937 shares issued

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

1 unchanged sentence

Retained earnings 22,164.4 19,185.3

Treasury stock, 59,760,502 shares and 55,219,914 shares at March 31, 2023

Treasury stock, 62,881,870 shares and 55,219,914 shares at June 30, 2023

and September 30, 2022, respectively, at cost

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

55 unchanged sentences

$ 4.0 $ 3,358.0 $ 20,914.5 $ ( 3,563.8 ) $ 409.1 $ 21,121.8

Net income — — 1,335.1 — 16.6 1,351.7

Exercise of stock options ( 240,620 shares)

— 5.7 — — — 5.7

Stock issued under employee benefit plans ( 33,425 shares)

— 2.0 — — — 2.0

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

Stock-based compensation expense — 29.3 — — — 29.3

Cash dividends declared ($ 0.25 per share)

— — ( 85.2 ) — — ( 85.2 )

Repurchases of common stock ( 3,121,368 shares)

— — — ( 342.9 ) — ( 342.9 )

Change of ownership interest in Forestar — ( 0.2 ) — — 0.2 —

Balances at June 30, 2023 ( 338,222,953 shares)

$ 4.0 $ 3,394.7 $ 22,164.4 $ ( 3,906.7 ) $ 425.9 $ 22,082.3

See accompanying notes to consolidated financial statements.

37 unchanged sentences

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

Net income — — 1,647.8 — 11.5 1,659.3

Exercise of stock options ( 25,725 shares)

— 0.6 — — — 0.6

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

— 4.1 — — — 4.1

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

Stock-based compensation expense — 24.8 — — — 24.8

Cash dividends declared ($ 0.225 per share)

— — ( 79.2 ) — — ( 79.2 )

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

— — — ( 310.0 ) — ( 310.0 )

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

Noncontrolling interest acquired — — — — 18.2 18.2

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

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended March 31,

Nine Months Ended June 30,

(In millions)

13 unchanged sentences

Decrease (increase) in other assets 242.1 ( 777.3 )

Decrease (increase) in mortgage loans held for sale 262.0 ( 215.5 )

Increase in mortgage loans held for sale ( 28.4 ) ( 55.2 )

(Decrease) increase in accounts payable, accrued expenses and other liabilities ( 338.5 ) 1,036.4

2 unchanged sentences

Expenditures for property and equipment ( 108.3 ) ( 108.0 )

Payments related to business acquisitions ( 103.5 ) —

Payments related to business acquisitions, net of cash acquired ( 202.0 ) ( 271.5 )

Other investing activities 1.8 6.6

3 unchanged sentences

Repayment of notes payable ( 675.4 ) ( 2,051.2 )

(Payments) borrowings on mortgage repurchase facility, net ( 63.4 ) 84.3

Borrowings (payments) on mortgage repurchase facility, net 67.3 ( 88.9 )

Proceeds from stock associated with certain employee benefit plans 18.7 26.9

12 unchanged sentences

Stock issued under employee incentive plans $ 110.8 $ 130.0

Repurchases of common stock not settled $ — $ 20.1

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2023

June 30, 2023

NOTE A – BASIS OF PRESENTATION

2 unchanged sentences

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

As of March 31, 2023, the Company owned a 63 % controlling interest in Forestar Group Inc.

As of June 30, 2023, 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.

9 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

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

Business Acquisition

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

Business Acquisitions

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

1 unchanged sentence

The purchase price was recorded to inventory and no goodwill was recorded as a result of this transaction.

In June 2023, the Company acquired the homebuilding operations of Truland Homes for approximately $ 100 million in cash.

Truland Homes operates in Baldwin County, Alabama and Northwest Florida.

The assets acquired included approximately 155 homes in inventory, 620 lots and a sales order backlog of 55 homes.

The Company also acquired control of approximately 660 additional lots through land purchase contracts.

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

Pending Accounting Standards

5 unchanged sentences

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

March 31, 2023

June 30, 2023

NOTE B – SEGMENT INFORMATION

30 unchanged sentences

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

March 31, 2023

June 30, 2023

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:

March 31, 2023

June 30, 2023

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

30 unchanged sentences

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

March 31, 2023

June 30, 2023

September 30, 2022

31 unchanged sentences

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

March 31, 2023

Three Months Ended March 31, 2023

June 30, 2023

Three Months Ended June 30, 2023

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

23 unchanged sentences

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

March 31, 2023

Six Months Ended March 31, 2023

June 30, 2023

Nine Months Ended June 30, 2023

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

28 unchanged sentences

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

March 31, 2023

Three Months Ended March 31, 2022

June 30, 2023

Three Months Ended June 30, 2022

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

23 unchanged sentences

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

March 31, 2023

Six Months Ended March 31, 2022

June 30, 2023

Nine Months Ended June 30, 2022

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

22 unchanged sentences

$ 47.0 $ 2.0 $ 1.4 $ 0.5 $ 9.3 $ 60.2

Cash (used in) provided by operating activities $ ( 416.2 ) $ 76.6 $ ( 63.0 ) $ ( 409.1 ) $ ( 22.9 ) $ ( 834.6 )

Cash provided by (used in) operating activities $ 124.5 $ ( 10.2 ) $ 150.1 $ ( 826.4 ) $ ( 0.8 ) $ ( 562.8 )

______________

4 unchanged sentences

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

March 31, 2023

June 30, 2023

Homebuilding Inventories by Reporting Segment (1)

13 unchanged sentences

Homebuilding Results by Reporting Segment Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

17 unchanged sentences

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

March 31, 2023

June 30, 2023

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 March 31, 2023, the Company performed detailed impairment evaluations of communities and land inventories and determined that communities with a combined carrying value of $ 30.6 million were impaired.

As a result, impairment charges of $ 9.2 million were recorded during the three months ended March 31, 2023 to reduce the carrying value of the related inventory to fair value.

During the six months ended March 31, 2023, impairment charges totaled $ 14.0 million.

There were $ 3.8 million of impairment charges recorded in the three and six months ended March 31, 2022.

During the three and six months ended March 31, 2023, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 14.6 million and $ 37.4 million, respectively, compared to $ 11.4 million and $ 16.2 million in the same periods of fiscal 2022.

As of June 30, 2023, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended June 30, 2023.

During the nine months ended June 30, 2023, impairment charges totaled $ 14.0 million.

There were no impairment charges recorded in the prior year quarter and $ 3.8 million of impairment charges recorded in the nine months ended June 30, 2022.

During the three and nine months ended June 30, 2023, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 10.8 million and $ 48.2 million, respectively, compared to $ 10.6 million and $ 26.8 million in the same periods 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)

March 31, 2023

June 30, 2023

NOTE D – NOTES PAYABLE

16 unchanged sentences

Financial Services

Mortgage repurchase facility 1,554.9 1,618.3

Mortgage repurchase facilities:

Committed facility 1,385.9 1,618.3

Uncommitted facility 299.7 —

1,685.6 1,618.3

Revolving credit facility 1,000.0 800.0

Total notes payable (3)

$ 6,105.3 $ 6,066.9

_____________

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 10.2 million and $ 12.2 million at March 31, 2023 and September 30, 2022, respectively.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 5.7 million and $ 6.5 million at March 31, 2023 and September 30, 2022, respectively.

(3) The fair value of notes payable at March 31, 2023 totaled $ 5.7 billion, of which $ 2.9 billion were measured using Level 2 inputs and $ 2.8 billion were measured using Level 3 inputs.

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 9.2 million and $ 12.2 million at June 30, 2023 and September 30, 2022, respectively.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 5.3 million and $ 6.5 million at June 30, 2023 and September 30, 2022, respectively.

(3) The fair value of notes payable at June 30, 2023 totaled $ 5.9 billion, of which $ 3.0 billion were measured using Level 2 inputs and $ 2.9 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)

March 31, 2023

June 30, 2023

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

2 unchanged sentences

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

At March 31, 2023, there were no borrowings outstanding and $ 202.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.99 billion.

At June 30, 2023, there were no borrowings outstanding and $ 223.4 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.97 billion.

In February 2023, the Company repaid $ 300 million principal amount of its 4.75 % senior notes at maturity.

In July 2023, the Company redeemed $ 400 million principal amount of its 5.75 % senior notes due August 2023.

The senior notes were redeemed at a price equal to 100 % of the principal amount of the notes, together with accrued and unpaid interest.

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

2 unchanged sentences

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

At March 31, 2023, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility and public debt obligations.

At June 30, 2023, 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.

3 unchanged sentences

The authorization has no expiration date.

All of the $ 500 million authorization was remaining at March 31, 2023.

All of the $ 500 million authorization was remaining at June 30, 2023.

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

3 unchanged sentences

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

At March 31, 2023, there were no borrowings outstanding and $ 42.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 367.4 million.

At June 30, 2023, there were no borrowings outstanding and $ 29.8 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 380.2 million.

AND SUBSIDIARIES

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

June 30, 2023

The Forestar 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.

AND SUBSIDIARIES

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

March 31, 2023

At June 30, 2023, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

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.

1 unchanged sentence

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

At March 31, 2023, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

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

The authorization has no expiration date.

All of the $ 30 million authorization was remaining at March 31, 2023.

All of the $ 30 million authorization was remaining at June 30, 2023.

Financial Services

The Company’s 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.

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 2023, the mortgage repurchase facility was amended to increase its capacity to $ 2.0 billion and extend its maturity date to February 16, 2024.

The capacity of the facility can be increased to $ 2.3 billion subject to the availability of additional commitments.

As of March 31, 2023, $ 2.14 billion of mortgage loans held for sale with a collateral value of $ 2.10 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 541.0 million, DHI Mortgage had an obligation of $ 1.55 billion outstanding under the mortgage repurchase facility at March 31, 2023 at a 6.4 % annual interest rate.

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

The Company’s mortgage subsidiary, DHI Mortgage, has two mortgage repurchase facilities, one of which is committed and the other of which is uncommitted, that provide financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to counterparties upon receipt of funds from the counterparties.

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 in accordance with the terms of the mortgage repurchase facilities.

The committed mortgage repurchase facility has a total capacity of $ 2.0 billion and a maturity date of February 16, 2024.

The capacity of the committed mortgage repurchase facility can be increased to $ 2.3 billion subject to the availability of additional commitments.

At June 30, 2023, DHI Mortgage had an obligation of $ 1.39 billion under the committed mortgage repurchase facility at a 6.7 % annual interest rate.

In April 2023, DHI Mortgage entered into a master repurchase agreement providing for a mortgage repurchase facility with an uncommitted borrowing capacity of up to $ 300 million.

At June 30, 2023, DHI Mortgage had an obligation of $ 299.7 million under the uncommitted mortgage repurchase facility at a 6.5 % annual interest rate.

As of June 30, 2023, $ 2.03 billion of mortgage loans held for sale with a collateral value of $ 1.99 billion were pledged under the committed mortgage repurchase facility, and $ 376.5 million of mortgage loans held for sale with a collateral value of $ 360.0 million were pledged under the uncommitted mortgage repurchase facility.

The facilities contain financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable indebtedness to tangible net worth ratio and its minimum required liquidity.

At June 30, 2023, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facilities.

These mortgage repurchase facilities are not guaranteed by D.R.

or any of the subsidiaries that guarantee the debt of the Company’s 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.

These covenants are measured and reported to the lenders monthly.

At March 31, 2023, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

AND SUBSIDIARIES

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

June 30, 2023

The Company’s rental subsidiary, DRH Rental, has a $ 1.025 billion senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $ 1.25 billion, subject to certain conditions and availability of additional bank commitments.

2 unchanged sentences

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

Borrowings and repayments under the facility totaled $ 575 million and $ 350 million, respectively, during the six months ended March 31, 2023.

At March 31, 2023, the capacity of the facility was fully utilized, with $ 1.025 billion of borrowings outstanding at a 7.2 % annual interest rate.

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

Borrowings and repayments under the facility totaled $ 575 million and $ 375 million, respectively, during the nine months ended June 30, 2023.

At June 30, 2023, there were $ 1.0 billion of borrowings outstanding at a 7.5 % annual interest rate, and no letters of credit issued under the facility, resulting in available capacity of $ 25.0 million.

The rental 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.

1 unchanged sentence

At March 31, 2023, 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)

March 31, 2023

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.

At June 30, 2023, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

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

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

4 unchanged sentences

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

During the first six months of fiscal 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 and six months ended March 31, 2023 and 2022:

During the first nine 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 and nine months ended June 30, 2023 and 2022:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

5 unchanged sentences

__________________

(1) Interest incurred includes (a) interest on the Company's mortgage repurchase facility of $ 9.7 million and $ 17.8 million in the three and six months ended March 31, 2023, respectively, and $ 3.0 million and $ 7.0 million in the same periods of fiscal 2022;

(b) Forestar interest of $ 8.2 million and $ 16.4 million in the three and six months ended March 31, 2023, respectively, and $ 8.1 million and $ 16.2 million in the same periods of fiscal 2022;

and (c) interest on DRH Rental’s revolving credit facility of $ 13.7 million and $ 22.7 million in the three and six months ended March 31, 2023, respectively.

(1) Interest incurred includes (a) interest on the Company's mortgage repurchase facility of $ 12.7 million and $ 30.5 million in the three and nine months ended June 30, 2023, respectively, and $ 4.0 million and $ 11.0 million in the same periods of fiscal 2022;

(b) Forestar interest of $ 8.2 million and $ 24.6 million in the three and nine months ended June 30, 2023, respectively, and $ 8.1 million and $ 24.3 million in the same periods of fiscal 2022;

and (c) interest on DRH Rental’s revolving credit facility of $ 19.3 million and $ 42.0 million in the three and nine months ended June 30, 2023, respectively.

AND SUBSIDIARIES

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

March 31, 2023

June 30, 2023

NOTE F – MORTGAGE LOANS

2 unchanged sentences

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

At March 31, 2023, mortgage loans held for sale of $ 2.12 billion had an aggregate outstanding principal balance of $ 2.14 billion.

At June 30, 2023, mortgage loans held for sale of $ 2.41 billion had an aggregate outstanding principal balance of $ 2.45 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 six months ended March 31, 2023 and 2022, mortgage loans originated totaled $ 9.6 billion and $ 8.4 billion, respectively, and mortgage loans sold totaled $ 9.9 billion and $ 8.1 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 154.5 million and $ 233.8 million during the three and six months ended March 31, 2023, respectively, compared to $ 168.0 million and $ 302.0 million in the prior year periods.

During the nine months ended June 30, 2023 and 2022, mortgage loans originated totaled $ 15.3 billion and $ 13.5 billion, respectively, and mortgage loans sold totaled $ 15.3 billion and $ 13.4 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 157.9 million and $ 391.6 million during the three and nine months ended June 30, 2023, respectively, compared to $ 195.3 million and $ 497.3 million in the prior year periods.

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

During the six months ended March 31, 2023, approximately 53 % 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 43 % were sold to one other major financial entity.

During the nine months ended June 30, 2023, approximately 59 % 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.

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

At March 31, 2023 and September 30, 2022, the Company had mortgage-backed securities (MBS) totaling $ 1.1 billion and $ 532.4 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned.

The Company recorded a liability of $ 2.4 million at March 31, 2023 and an asset of $ 4.8 million at September 30, 2022 for the fair value of such MBS position which is measured using Level 2 inputs.

At June 30, 2023 and September 30, 2022, the Company had mortgage-backed securities (MBS) totaling $ 1.2 billion and $ 532.4 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned.

The Company recorded an asset of $ 10.0 million at June 30, 2023 and $ 4.8 million at September 30, 2022 for the fair value of such MBS position which is measured using Level 2 inputs.

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

At March 31, 2023 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 $ 3.0 billion and $ 4.0 billion, respectively.

At June 30, 2023 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 $ 3.0 billion and $ 4.0 billion, respectively.

NOTE G – INCOME TAXES

The Company’s income tax expense for the three and six months ended March 31, 2023 was $ 295.7 million and $ 594.6 million, respectively, compared to $ 441.0 million and $ 792.5 million in the prior year periods.

The effective tax rate was 23.7 % for both the three and six months ended March 31, 2023 compared to 23.4 % in both of the prior year periods.

The Company’s income tax expense for the three and nine months ended June 30, 2023 was $ 432.2 million and $ 1.0 billion, respectively, compared to $ 524.0 million and $ 1.3 billion in the prior year periods.

The effective tax rate was 24.2 % and 23.9 % for the three and nine months ended June 30, 2023, respectively, compared to 24.0 % and 23.7 % in the prior year periods.

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

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 130.1 million at March 31, 2023 compared to $ 159.0 million at September 30, 2022.

The Company has a valuation allowance of $ 17.8 million and $ 17.9 million at March 31, 2023 and September 30, 2022, 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.

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 139.6 million at June 30, 2023 compared to $ 159.0 million at September 30, 2022.

The Company has a valuation allowance of $ 17.8 million and $ 17.9 million at June 30, 2023 and September 30, 2022, 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.

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.

The accounting for deferred taxes is based upon estimates of future results.

Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position.

Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.

AND SUBSIDIARIES

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

March 31, 2023

June 30, 2023

NOTE H – EARNINGS PER SHARE

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

12 unchanged sentences

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

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

During the six months ended March 31, 2023, the Company repurchased 4.5 million shares at a total cost including commissions and excise taxes of $ 421.3 million, leaving $ 17.0 million remaining on the repurchase authorization at March 31, 2023.

In April 2023, the Board of Directors authorized the repurchase of up to $ 1.0 billion of the Company’s common stock, replacing the previous authorization.

The authorization has no expiration date.

During each of the first two quarters of fiscal 2023, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, the most recent of which was paid on February 14, 2023 to stockholders of record on February 7, 2023.

In April 2023, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, payable on May 10, 2023 to stockholders of record on May 3, 2023.

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

The Company repurchased 3.1 million shares of its common stock during the three months ended June 30, 2023 at a total cost, including commissions and excise taxes, of $ 342.9 million.

The Company repurchased 7.7 million shares for $ 764.2 million during the nine months ended June 30, 2023.

At June 30, 2023, there was $ 657.1 million remaining on the repurchase authorization.

During each of the first three quarters of fiscal 2023, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, the most recent of which was paid on May 10, 2023 to stockholders of record on May 3, 2023.

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

Cash dividends declared and paid in the three and nine months ended June 30, 2023 totaled $ 85.2 million and $ 256.9 million, respectively.

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 (ATM) program that became effective in November 2021.

During the six months ended March 31, 2023, there were no shares issued under Forestar’s ATM program.

At March 31, 2023, $ 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.

During the nine months ended June 30, 2023, there were no shares issued under Forestar’s ATM program.

At June 30, 2023, $ 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)

March 31, 2023

June 30, 2023

NOTE J – EMPLOYEE BENEFIT PLANS

12 unchanged sentences

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

Compensation expense related to this grant was $ 4.5 million and $ 8.9 million in the three and six months ended March 31, 2023, respectively, based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the three months ended March 31, 2023, the Company granted approximately 790,000 time-based RSUs to approximately 1,370 employees.

The grant date fair value of these equity awards was $ 92.34 per unit, and they vest annually in equal installments over five years.

Compensation expense related to these grants was $ 2.3 million in both the three and six months ended March 31, 2023, which primarily related to expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 26.0 million and $ 47.1 million during the three and six months ended March 31, 2023, respectively, compared to $ 28.9 million and $ 50.9 million during the three and six months ended March 31, 2022.

Compensation expense related to this grant was $ 2.6 million and $ 11.5 million in the three and nine months ended June 30, 2023, 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, 2023, the Company granted approximately 880,000 time-based RSUs to approximately 1,380 recipients, including executive officers, other key employees and non-management directors.

The weighted average grant date fair value of these equity awards was $ 93.44 per unit, and they vest annually in equal installments over periods of three to five years.

Compensation expense related to these grants was $ 9.3 million and $ 11.6 million in the three and nine months ended June 30, 2023, respectively.

Compensation expense in the three and nine months ended June 30, 2023 included $ 5.1 million and $ 7.0 million, respectively, 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 $ 26.3 million and $ 73.4 million during the three and nine months ended June 30, 2023, respectively, compared to $ 23.4 million and $ 74.3 million during the three and nine months ended June 30, 2022.

AND SUBSIDIARIES

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

March 31, 2023

June 30, 2023

NOTE K – COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

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

Changes in the Company’s warranty liability during the three and six months ended March 31, 2023 and 2022 were as follows:

Changes in the Company’s warranty liability during the three and nine months ended June 30, 2023 and 2022 were as follows:

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

9 unchanged sentences

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

The estimated liabilities for these contingencies were $ 768.3 million and $ 729.1 million at March 31, 2023 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 March 31, 2023 and September 30, 2022.

Expenses related to the Company’s legal contingencies were $ 53.3 million and $ 44.1 million in the six months ended March 31, 2023 and 2022, respectively.

Changes in the Company’s legal claims reserves during the six months ended March 31, 2023 and 2022 were as follows:

Six Months Ended

The estimated liabilities for these contingencies were $ 796.2 million and $ 729.1 million at June 30, 2023 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 June 30, 2023 and September 30, 2022.

Expenses related to the Company’s legal contingencies were $ 92.6 million and $ 90.7 million in the nine months ended June 30, 2023 and 2022, respectively.

Changes in the Company’s legal claims reserves during the nine months ended June 30, 2023 and 2022 were as follows:

Nine Months Ended

(In millions)

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

March 31, 2023

June 30, 2023

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 $ 139.0 million, $ 137.9 million and $ 112.0 million at March 31, 2023, September 30, 2022 and March 31, 2022, 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 $ 139.0 million, $ 137.9 million and $ 122.3 million at June 30, 2023, September 30, 2022 and June 30, 2022, respectively, and are included in other assets in the consolidated balance sheets.

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

6 unchanged sentences

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

At March 31, 2023, the Company had total deposits of $ 1.6 billion, consisting of cash deposits of $ 1.5 billion and promissory notes and surety bonds of $ 94.7 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 19.2 billion.

At June 30, 2023, the Company had total deposits of $ 1.7 billion, consisting of cash deposits of $ 1.6 billion and promissory notes and surety bonds of $ 103.0 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 19.8 billion.

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

Of these amounts, $ 121.2 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $ 1.3 billion.

A limited number of the homebuilding land and lot purchase contracts at March 31, 2023, representing $ 76.7 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

A limited number of the homebuilding land and lot purchase contracts at June 30, 2023, representing $ 45.7 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 $ 45.7 million remaining purchase price subject to specific performance provisions, $ 19.4 million related to contracts between the homebuilding segment and Forestar.

During the three and six months ended March 31, 2023, Forestar reimbursed the homebuilding segment $ 5.7 million and $ 10.4 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2022, Forestar reimbursed the homebuilding segment $ 16.2 million and $ 37.8 million, respectively, for such pre-acquisition and due diligence costs and also reimbursed the homebuilding segment $ 2.7 million and $ 5.4 million, respectively, for previously paid earnest money.

During the three and nine months ended June 30, 2023, Forestar reimbursed the homebuilding segment $ 6.7 million and $ 17.1 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, 2022, Forestar reimbursed the homebuilding segment $ 18.3 million and $ 56.1 million, respectively, for such pre-acquisition and due diligence costs and also reimbursed the homebuilding segment $ 4.2 million and $ 9.6 million, respectively, for previously paid earnest money.

Other Commitments

At March 31, 2023, the Company had outstanding surety bonds of $ 2.9 billion and letters of credit of $ 245.2 million to secure performance under various contracts.

At June 30, 2023, the Company had outstanding surety bonds of $ 3.0 billion and letters of credit of $ 253.2 million to secure performance under various contracts.

Of the total letters of credit, $ 223.4 million were issued under the homebuilding revolving credit facility and $ 29.8 million were issued under Forestar’s revolving credit facility.

1 unchanged sentence

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

March 31, 2023

June 30, 2023

NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

The Company’s other assets at March 31, 2023 and September 30, 2022 were as follows:

The Company’s other assets at June 30, 2023 and September 30, 2022 were as follows:

2023 September 30,

5 unchanged sentences

Insurance receivables 139.0 137.9

Assets held for sale 65.9 —

Prepaid assets 58.1 77.4

5 unchanged sentences

$ 2,806.6 $ 2,960.3

The Company’s accrued expenses and other liabilities at March 31, 2023 and September 30, 2022 were as follows:

The Company’s accrued expenses and other liabilities at June 30, 2023 and September 30, 2022 were as follows:

2023 September 30,

15 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