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Item 8. Financial Statements and Supplementary Data

2023-11-17 compared with 2022-11-18 · 169 added, 202 removed, 1194 unchanged (24% of the section changed)

8 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of D.R.

To the Stockholders and the Board of Directors of D.R.

Opinion on the Financial Statements

39 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of D.R.

To the Stockholders and the Board of Directors of D.R.

Opinion on Internal Control Over Financial Reporting

122 unchanged sentences

— — — ( 1,105.9 ) — ( 1,105.9 )

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

Change of ownership interest in Forestar — ( 1.6 ) — — 3.5 1.9

Noncontrolling interest acquired — — — — 18.0 18.0

Balances at September 30, 2022 ( 343,953,023 shares)

12 unchanged sentences

Change of ownership interest in Forestar — ( 2.8 ) — — 2.9 0.1

Noncontrolling interest acquired — — — — 18.0 18.0

Balances at September 30, 2023 ( 334,848,565 shares)

16 unchanged sentences

Changes in operating assets and liabilities:

Increase in construction in progress and finished homes ( 2,059.0 ) ( 1,734.9 ) ( 739.1 )

Decrease (increase) in construction in progress and finished homes 861.8 ( 2,059.0 ) ( 1,734.9 )

Increase in residential land and lots —

2 unchanged sentences

Increase in rental properties ( 151.8 ) ( 1,723.2 ) ( 303.6 )

Increase in other assets ( 1,111.5 ) ( 440.7 ) ( 151.4 )

Decrease (increase) in other assets 23.8 ( 1,111.5 ) ( 440.7 )

Increase in mortgage loans held for sale ( 133.9 ) ( 358.8 ) ( 498.3 )

Increase in accounts payable, accrued expenses and other liabilities 1,035.5 845.1 566.2

(Decrease) increase in accounts payable, accrued expenses and other liabilities ( 101.8 ) 1,035.5 845.1

Net cash provided by operating activities 4,304.1 561.8 534.4

9 unchanged sentences

Repayment of notes payable ( 1,823.9 ) ( 3,801.2 ) ( 826.3 )

Advances on mortgage repurchase facility, net 123.7 362.0 243.7

Borrowings on mortgage repurchase facility, net 51.3 123.7 362.0

Proceeds from stock associated with certain employee benefit plans 25.5 33.2 22.7

4 unchanged sentences

Net other financing activities ( 54.8 ) 91.4 ( 2.4 )

Net cash (used in) provided by financing activities ( 811.2 ) ( 85.1 ) 270.6

Net (decrease) increase in cash, cash equivalents and restricted cash ( 664.3 ) 197.1 1,526.1

Net cash used in financing activities ( 2,666.7 ) ( 811.2 ) ( 85.1 )

Net increase (decrease) in cash, cash equivalents and restricted cash 1,327.2 ( 664.3 ) 197.1

Cash, cash equivalents and restricted cash at beginning of year 2,572.9 3,237.2 3,040.1

10 unchanged sentences

Stock issued under employee incentive plans $ 111.4 $ 130.9 $ 124.7

Repurchase of common stock not settled $ — $ 25.6 $ —

Repurchases of common stock not settled $ — $ — $ 25.6

See accompanying notes to consolidated financial statements.

89 unchanged sentences

Land purchase contracts can result in the creation of a variable interest in the entity holding the land parcel under contract.

There was one variable interest entity consolidated for $ 64.3 million in the Company’s balance sheet at September 30, 2022 because the Company determined it controlled the activities that most significantly impacted the variable interest entity’s economic performance.

There were no variable interest entities consolidated in the Company’s balance sheet at September 30, 2021.

There was one variable interest entity consolidated for $ 118.8 million and $ 64.3 million in the Company’s balance sheets at September 30, 2023 and 2022, respectively, because the Company determined it controlled the activities that most significantly impacted the variable interest entity’s economic performance.

The maximum exposure to losses related to the Company’s unconsolidated variable interest entities is limited to the amounts of the Company’s related deposits.

At September 30, 2022 and 2021, the deposits related to these contracts totaled $ 1.5 billion and $ 870.2 million, respectively, and are included in other assets in the consolidated balance sheets.

At September 30, 2023 and 2022, the deposits related to these contracts totaled $ 1.6 billion and $ 1.5 billion, respectively, and are included in other assets in the consolidated balance sheets.

AND SUBSIDIARIES

12 unchanged sentences

Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

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.

There was no goodwill recorded as a result of this transaction.

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

Cash and cash equivalents $ 19.0

Deferred income taxes, net of valuation allowance of $ 15.8 million

Water rights and other water-related assets (1)

Total assets 313.9

Other liabilities 5.4

Total liabilities 5.4

Noncontrolling interest 18.0

Net assets acquired $ 290.5

_____________________________________

(1) Water rights and other water-related assets were measured at fair value using Level 3 inputs and are included in other assets in the Company’s consolidated financial statements.

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 and 3,000 lots.

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 $ 110 million in cash.

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

The assets acquired included approximately 155 homes in inventory and 620 lots.

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

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

The Company records goodwill associated with its acquisitions of businesses when the purchase price of the business exceeds the fair value of the identifiable net assets acquired.

2 unchanged sentences

The estimated fair value is determined by discounting the future cash flows of the operating segment to present value.

If the carrying value

If the carrying value of the operating segment exceeds its fair value, the Company records a goodwill impairment by the amount that an operating segment’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

As a result of the qualitative assessments performed in fiscal 2023, 2022 and 2021, no impairment charges were indicated or recorded.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of the operating segment exceeds its fair value, the Company records a goodwill impairment by the amount that an operating segment’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

As a result of the qualitative assessments performed in fiscal 2022, 2021 and 2020, no impairment charges were indicated or recorded.

The Company’s goodwill balances by reporting segment were as follows:

14 unchanged sentences

The amounts charged are based on management’s estimate of the warranty-related costs expected to be incurred in the future.

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.

The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates.

Legal Claims and Insurance

6 unchanged sentences

The Company expenses advertising costs as incurred.

Advertising expense was approximately $ 41.7 million, $ 36.1 million and $ 41.7 million in fiscal 2022, 2021 and 2020, respectively.

The Company’s income tax expense is calculated using the asset and liability method, under which deferred tax assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between the financial statement amounts of assets and liabilities and their respective tax bases and attributable to net operating

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

losses and tax credit carryforwards.

Advertising expense was approximately $ 64.7 million, $ 41.7 million and $ 36.1 million in fiscal 2023, 2022 and 2021, respectively, and is included in SG&A expense in the consolidated statements of operations.

When assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of its deferred tax assets will not be realized.

1 unchanged sentence

The Company records a valuation allowance when it determines it is more likely than not that a portion of the deferred tax assets will not be realized.

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

The accounting for

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

5 unchanged sentences

Changes in the recognition or measurement of uncertain tax positions could result in increases or decreases in the Company’s income tax expense in the period in which the change is made.

The Company’s unrecognized tax benefits totaled $ 2.9 million at both September 30, 2022 and 2021.

The Company’s unrecognized tax benefits totaled $ 1.4 million and $ 2.9 million at September 30, 2023 and 2022, respectively.

Earnings Per Share

15 unchanged sentences

Fair Value Measurements

The Financial Accounting Standards Board’s (FASB) authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability.

The Financial Accounting Standards Board’s authoritative guidance for fair value measurements establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability.

When available, the Company uses quoted market prices in active markets to determine fair value.

The Company considers the principal market and nonperformance risk associated with the Company’s counterparties when determining the fair value measurements, if applicable.

Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis and are used for inventories, other mortgage loans, rental properties and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying value is not recoverable.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pending Accounting Standards

In March 2020, the 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.

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

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

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

Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis and are used for inventories, other mortgage loans and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying value is not recoverable.

AND SUBSIDIARIES

16 unchanged sentences

Most of the revenue generated by the Company’s homebuilding operations is from the sale of completed homes and to a lesser extent from the sale of land and lots.

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

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.

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

The Forestar segment is a residential lot development company with operations in 54 markets across 22 states.

5 unchanged sentences

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

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 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.

The Company conducts insurance-related operations, owns water rights and other water-related assets, owns non-residential real estate including ranch land and improvements and owns and operates energy-related assets.

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

The Company conducts insurance-related operations, owns water rights and other water-related assets and owns non-residential real estate including ranch land and improvements.

The results of these operations are immaterial for separate reporting and therefore are grouped together and presented in the Eliminations and Other column in the tables that follow.

4 unchanged sentences

September 30, 2023

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

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

(In millions)

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.

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

AND SUBSIDIARIES

1 unchanged sentence

September 30, 2022

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

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

(In millions)

21 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.

(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

1 unchanged sentence

Year Ended September 30, 2023

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

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

(In millions)

21 unchanged sentences

$ 64.0 $ 2.4 $ 3.0 $ 2.1 $ 20.1 $ 91.6

Cash provided by (used in) operating activities $ 1,916.7 $ 108.7 $ ( 10.5 ) $ ( 1,391.0 ) $ ( 62.1 ) $ 561.8

Cash provided by operating activities $ 3,078.4 $ 739.2 $ 364.1 $ 13.2 $ 109.2 $ 4,304.1

_____________

(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.

4 unchanged sentences

Year Ended September 30, 2022

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

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

(In millions)

16 unchanged sentences

Selling, general and administrative expense 2,186.7 91.1 93.6 547.6 14.7 2,933.7

Gain on sale of assets — ( 2.5 ) — — ( 11.5 ) ( 14.0 )

Loss on extinguishment of debt — 18.1 — — — 18.1

Other (income) expense ( 16.4 ) ( 27.1 ) ( 5.4 ) ( 43.2 ) 32.8 ( 59.3 )

5 unchanged sentences

_____________

(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.

3 unchanged sentences

Year Ended September 30, 2021

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

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

(In millions)

17 unchanged sentences

Gain on sale of assets — — ( 2.5 ) — ( 11.5 ) ( 14.0 )

Loss on extinguishment of debt — — 18.1 — — 18.1

Other (income) expense ( 10.3 ) ( 24.8 ) ( 1.4 ) ( 29.3 ) 24.2 ( 41.6 )

5 unchanged sentences

_____________

(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, the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

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

49 unchanged sentences

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

There were $ 3.8 million of impairment charges recorded during fiscal 2022 that related to a Forestar land development project, compared to $ 5.6 million and $ 1.7 million of impairment charges recorded in fiscal 2021 and 2020, respectively.

As of September 30, 2023, the Company performed detailed impairment evaluations of communities and land inventories and determined that communities with a combined carrying value of $ 33.8 million were impaired.

As a result, impairment charges of $ 5.0 million were recorded during the three months ended September 30, 2023 to reduce the carrying value of the related inventory to fair value.

During fiscal 2023, impairment charges totaled $ 19.0 million compared to $ 3.8 million and $ 5.6 million in fiscal 2022 and 2021, respectively.

During fiscal 2023, 2022 and 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 61.3 million, $ 66.6 million and $ 23.0 million, respectively.

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE D – NOTES PAYABLE

9 unchanged sentences

1.4 % senior notes due 2027 (1)

Other secured notes 239.8 156.6

1 unchanged sentence

Revolving credit facility 400.0 800.0

Revolving credit facility — —

3.85 % senior notes due 2026 (2)

2 unchanged sentences

Financial Services

Mortgage repurchase facility 1,618.3 1,494.6

Revolving credit facility 800.0 —

Total $ 6,066.9 $ 5,412.4

See footnotes on following page.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mortgage repurchase facilities:

Committed facility 1,373.3 1,618.3

Uncommitted facility 296.3 —

1,669.6 1,618.3

Total notes payable $ 5,094.5 $ 6,066.9

_____________

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 8.4 million and $ 12.2 million at September 30, 2023 and 2022, 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.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 5.0 million and $ 6.5 million at September 30, 2023 and 2022, respectively.

As of September 30, 2022, maturities of consolidated notes payable, assuming the mortgage repurchase facility is not extended or renewed, are $ 2.5 billion in fiscal 2023, $ 12.9 million in fiscal 2024, $ 500.4 million in fiscal 2025, $ 1.7 billion in fiscal 2026, $ 600.4 million in fiscal 2027 and $ 800.0 million thereafter.

As of September 30, 2023, maturities of consolidated notes payable, assuming the mortgage repurchase facility is not extended or renewed, are $ 1.9 billion in fiscal 2024, $ 522.7 million in fiscal 2025, $ 1.3 billion in fiscal 2026, $ 607.2 million in fiscal 2027, $ 800 million in fiscal 2028 and none thereafter.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

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

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

At September 30, 2023, there were no borrowings outstanding and $ 226.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.96 billion.

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

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

3 unchanged sentences

At September 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.

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

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

In September 2022, the Company repaid $ 350 million principal amount of its 4.375 % senior notes at maturity.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The key terms of the Company’s homebuilding senior notes outstanding as of September 30, 2023 are summarized below.

3 unchanged sentences

(In millions)

4.75% senior notes $ 300 February 2013 February 15, 2023 Yes 4.9 %

5.75% senior notes $ 400 August 2013 August 15, 2023 Yes 5.9 %

2.5% senior notes $ 500 October 2019 October 15, 2024 Yes 2.7 %

4 unchanged sentences

(1) The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100 % of their principal amount or the present value of the remaining scheduled payments discounted to the redemption date, plus accrued and unpaid interest.

In addition, the 4.75 % senior notes and 5.75 % senior notes are redeemable at a redemption price of 100 % of their principal amount, plus accrued and unpaid interest, on or after the date that is three months prior to the final maturity date of the notes.

The 2.5 % senior notes, the 2.6 % senior notes and the 1.3 % senior notes are redeemable at a redemption price of 100 % of their principal amount, plus accrued and unpaid interest, on or after the date that is one month prior to the final maturity date of the notes.

In addition, the 2.5 % senior notes, the 2.6 % senior notes and the 1.3 % senior notes are redeemable at a redemption price of 100 % of their principal amount, plus accrued and unpaid interest, on or after the date that is one month prior to the final maturity date of the notes.

The 1.4 % senior notes are redeemable at a redemption price of 100 % of their principal amount, plus accrued and unpaid interest, on or after the date that is two months prior to the final maturity of the notes.

1 unchanged sentence

The annual effective interest rate is calculated after giving effect to the amortization of debt issuance costs and the discount, if applicable.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All series of homebuilding senior notes and borrowings under the homebuilding revolving credit facility are senior obligations and rank pari passu in right of payment to all existing and future unsecured indebtedness and senior to all existing and future indebtedness expressly subordinated to them.

2 unchanged sentences

Also, a change of control as defined in the revolving credit facility would constitute an event of default under the revolving credit facility, which could result in the acceleration of any borrowings outstanding under the facility and the termination of the commitments thereunder.

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

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

In July 2019, the Board of Directors authorized the repurchase of up to $ 500 million of the Company’s debt securities.

1 unchanged sentence

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

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.

Borrowings and repayments under the facility totaled $ 700 million and $ 1.1 billion, respectively, during fiscal 2023.

At September 30, 2023, there were $ 400 million of borrowings outstanding at a 7.7 % annual interest rate, and no letters of credit issued under the facility, resulting in available capacity of $ 625 million.

In October 2023, DRH Rental’s credit facility was amended to extend its maturity date to October 10, 2027 and to increase its accordion feature to allow for an increase in the size of the facility up to $ 2.0 billion, subject to certain conditions and availability of additional bank commitments.

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.

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

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

At September 30, 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.

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

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 October 28, 2026.

At September 30, 2023, there were no borrowings outstanding and $ 27.7 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 382.3 million.

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

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

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

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

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2023, Forestar had $ 700 million principal amount of senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, which represent unsecured obligations of Forestar.

2 unchanged sentences

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

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

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

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

At September 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.

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

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

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

2 unchanged sentences

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.

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 September 30, 2022 was $ 2.2 billion, and its maturity date is February 17, 2023.

As of September 30, 2022, $ 2.5 billion of mortgage loans held for sale with a collateral value of $ 2.4 billion were pledged under the mortgage repurchase facility.

As a result of advance paydowns totaling $ 827.2 million, DHI Mortgage had an obligation of $ 1.6 billion outstanding under the mortgage repurchase facility at September 30, 2022 at a 4.6 % annual interest rate.

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 September 30, 2023, DHI Mortgage had an obligation of $ 1.4 billion under the committed mortgage repurchase facility at a 6.9 % annual interest rate.

In April 2023, DHI Mortgage entered into a master repurchase agreement providing for an uncommitted mortgage repurchase facility.

At September 30, 2023, DHI Mortgage could borrow up to $ 300 million under the uncommitted mortgage repurchase facility and had an obligation of $ 296.3 million at a 6.6 % annual interest rate.

As of September 30, 2023, $ 2.22 billion of mortgage loans held for sale with a collateral value of $ 2.18 billion were pledged under the committed mortgage repurchase facility, and $ 323.0 million of mortgage loans held for sale with a collateral value of $ 300.9 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 September 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, rental or Forestar operations.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The mortgage repurchase facility is 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 September 30, 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE E – CAPITALIZED INTEREST

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_________________________

(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $ 18.9 million, $ 17.0 million and $ 19.1 million in fiscal 2022, 2021 and 2020, respectively.

Also included in interest incurred is Forestar interest of $ 32.9 million, $ 41.6 million and $ 41.2 million in fiscal 2022, 2021 and 2020, respectively.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1) Interest incurred in fiscal 2023, 2022 and 2021 includes interest on the Company's mortgage repurchase facility of $ 45.9 million, $ 18.9 million and $ 17.0 million, respectively, and Forestar interest of $ 32.8 million, $ 32.9 million and $ 41.6 million, respectively.

Interest incurred in fiscal 2023 also includes interest on DRH Rental’s revolving credit facility of $ 56.0 million.

NOTE F – PROPERTY AND EQUIPMENT

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Total homebuilding 415.0 361.8

Other Businesses

Energy-related assets 106.2 79.0

Office furniture and equipment 16.2 15.9

Land 16.1 16.1

Accumulated depreciation ( 40.7 ) ( 28.4 )

Total other businesses 97.8 82.6

Rental, net 2.4 2.0

Forestar, net 5.9 5.7

Financial services, net 4.1 4.3

Rental, net 2.0 0.6

Other businesses and eliminations, net 18.0 97.8

Property and equipment, net $ 445.4 $ 471.6

22 unchanged sentences

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

At September 30, 2022 and 2021, the Company had MBS totaling $ 532.4 million and $ 834.6 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded an asset of $ 4.8 million and $ 1.1 million, respectively, for the fair value of such MBS position.

At September 30, 2023 and 2022, the Company had 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 and recorded an asset of $ 15.7 million and $ 4.8 million, respectively, for the fair value of such MBS position.

Loan Commitments and Related Derivatives

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

The effective tax rate for fiscal 2020 also includes a reduction for a tax benefit related to the release of a valuation allowance against the Company’s state deferred tax assets.

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

Other tax related provisions of the IRA had no material impact on the Company’s financial statements.

Reconciliation of Expected Income Tax Expense

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Deferred income taxes, net $ 187.2 $ 141.1

The Company has $ 30.9 million of tax benefits for a federal net operating loss (NOL) carryforward acquired in the Vidler acquisition.

The Company has $ 29.3 million of tax benefits for a federal net operating loss (NOL) carryforward.

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

1 unchanged sentence

Horton has $ 11.9 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction.

Of the total amount, $ 4.3 million of the tax benefits expire over the next ten years and the remaining $ 7.7 million expire from fiscal years 2033 to 2042.

Of this amount, $ 4.5 million of the tax benefits expire over the next ten years and the remaining $ 7.4 million expire from fiscal years 2034 to 2043.

Forestar has $ 1.0 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction.

6 unchanged sentences

The Company has a valuation allowance of $ 14.8 million and $ 17.9 million at September 30, 2023 and 2022, respectively, related to deferred tax assets for state NOL, state capital loss and tax credit carryforwards that are expected to expire before being realized.

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

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.

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.

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

5 unchanged sentences

Unrecognized tax benefits, beginning of year $ 2.9 $ 2.9

Additions attributable to tax positions taken in the current year — 1.5

Additions attributable to tax positions taken in prior years — —

Additions for tax positions taken in the current or prior years — —

Settlements ( 1.5 ) —

Unrecognized tax benefits, end of year $ 1.4 $ 2.9

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $ 2.9 million.

The Company had no accrued interest or penalties related to unrecognized tax benefits at September 30, 2022.

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $ 1.4 million and $ 2.9 million in fiscal 2023 and 2022, respectively.

The Company had no accrued interest or penalties related to unrecognized tax benefits in fiscal 2023 or 2022.

The Company classifies interest expense and penalties on income taxes as income tax expense.

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Horton’s major tax jurisdictions remains open for examination for fiscal years 2019 through 2023.

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

Fiscal year 2019 is open with respect to a federal refund claim related to additional energy efficient tax credits.

This refund claim is currently under audit by the Internal Revenue Service.

Horton is under audit by various states;

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The statute of limitations for Forestar’s federal income tax remains open for examination for tax years 2020 through 2023.

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

The statute of limitations for Forestar’s major state tax jurisdictions generally remains open for examination for tax years 2018 through 2023.

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

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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 fiscal 2022, the Company repurchased 14.0 million shares of its common stock for $ 1.1 billion.

During fiscal 2023, the Company repurchased 11.1 million shares of its common stock at a total cost, including commissions and excise taxes, of $ 1.2 billion.

At September 30, 2023, there was $ 234.0 million remaining on the repurchase authorization.

In October 2023, the Board of Directors authorized the repurchase of up to $ 1.5 billion of the Company’s common stock, replacing the previous authorization, which at that time had only $ 32.8 million remaining due to repurchases made subsequent to year end.

The authorization has no expiration date.

The Board of Directors approved and paid quarterly cash dividends of $ 0.25 per common share in fiscal 2023 and $ 0.225 per common share in fiscal 2022.

In October 2022, the Board of Directors approved a quarterly cash dividend of $ 0.25 per common share, payable on December 12, 2022, to stockholders of record on December 2, 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 fiscal 2022, Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $ 1.7 million, net of commissions and other issuance costs totaling $ 0.1 million.

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

In October 2023, the Board of Directors approved a quarterly cash dividend of $ 0.30 per common share, payable on November 28, 2023, to stockholders of record on November 21, 2023.

During fiscal 2023, there were no shares issued under Forestar’s ATM program.

At September 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

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The Company’s net liabilities related to the deferred compensation plan were $ 148.2 million and $ 119.5 million at September 30, 2023 and 2022, respectively.

The Company records as expense the amount that the employee contributions would have earned had the funds been invested in the designated investments.

Related to this plan, the Company recorded a credit to expense of $ 24.0 million in fiscal 2022 and recorded charges to expense of $ 21.7 million and $ 5.3 million in fiscal 2021 and 2020, respectively.

The Company records as SG&A expense the amount that the employee contributions would have earned had the funds been invested in the designated investments.

Related to this plan, the Company recorded a charge to expense of $ 17.0 million in fiscal 2023, a credit to expense of $ 24.0 million in fiscal 2022 and a charge to expense of $ 21.7 million in fiscal 2021.

Employee Stock Purchase Plan

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November 2020 September 2023 360,000 $ 70.60 $ 11.0 $ 12.5 $ 12.5

November 2020 September 2023 360,000 70.60 12.5 12.5 —

October 2021 (1) September 2024 430,000 80.58 14.3 14.3 —

October 2022 September 2025 600,000 79.97 11.6 — —

$ 36.9 $ 26.8 $ 12.5

31 unchanged sentences

Warranty liabilities are established by charging cost of sales for each home delivered based on management’s estimate of expected warranty-related costs and by accruing for existing warranty claims.

The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates.

The estimation of these costs is subject to a high degree of variability due to uncertainties related to these factors.

13 unchanged sentences

The estimated liabilities for these contingencies were $ 858.9 million and $ 729.1 million at September 30, 2023 and 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 September 30, 2022 and 2021.

Approximately 97 % and 99 % of these reserves related to construction defect matters at September 30, 2023 and 2022, respectively.

Expenses related to the Company’s legal contingencies were $ 139.7 million, $ 138.0 million and $ 72.4 million in fiscal 2023, 2022 and 2021, respectively.

19 unchanged sentences

Reserves for legal claims, end of year $ 858.9 $ 729.1

In the majority of states in which it operates, the Company generally has, and requires the majority of the subcontractors it uses to have, general liability insurance which includes construction defect coverage.

The Company’s general liability insurance policies protect it against a portion of its risk of loss from construction defect and other claims and lawsuits.

Prior to June 1, 2021, in the majority of states in which it operates, the Company has general liability insurance policies to provide risk transfer against a portion of the risk of loss from construction defect and other claims.

The Company also contractually requires major subcontractors in most markets to have general liability insurance which includes construction defect coverage.

The Company estimates and records receivables under these policies 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.

However, because the self-insured retentions under these policies are significant and the limits of the policies are finite, the Company anticipates it may be in large part self-insured.

After June 1, 2021, except for contractual risk transfer, the Company is almost exclusively self-insured for construction defect exposures.

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 165.8 million and $ 137.9 million at September 30, 2023 and 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.

In some states where the Company believes it is too difficult or expensive for its subcontractors to obtain general liability insurance, the Company has waived its normal subcontractor general liability insurance requirements to obtain lower costs from subcontractors.

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Fiscal 2028 1.9

Thereafter 0.1

Rent expense was $ 44.7 million, $ 38.1 million and $ 31.7 million for fiscal 2023, 2022 and 2021, respectively.

7 unchanged sentences

Mortgage hedging instruments and commitments 153.6 330.2

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

Water rights and other water-related assets 319.6 286.6

Other receivables 167.2 210.9

27 unchanged sentences

NOTE N – FAIR VALUE MEASUREMENTS

Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage servicing rights, IRLCs and other derivative instruments on a recurring basis and are used for inventories, other mortgage loans, rental properties and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying value is not recoverable.

The fair value hierarchy and its application to the Company’s assets and liabilities is as follows:

Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage servicing rights, IRLCs and other derivative instruments on a recurring basis and are used for inventories, other mortgage loans and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying value is not recoverable.

The fair value hierarchy and its application to these Company assets and liabilities is as follows:

• Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.

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In addition, the Company actively monitors the financial strength of its counterparties.

◦ IRLCs - The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics.

These valuations do not contain adjustments for expirations as any expired commitments are excluded from the fair value measurement.

The Company generally only issues IRLCs for products that meet specific purchaser guidelines.

Should any purchaser become insolvent, the Company would not be required to close the transaction based on the terms of the commitment.

Since not all IRLCs will become closed loans, the Company adjusts its fair value measurements for the estimated amount of IRLCs that will not close.

◦ Loan sale commitments and hedging instruments - The fair values of best-efforts and mandatory loan sale commitments and derivative instruments such as forward sales of MBS that are utilized as hedging instruments are calculated by reference to quoted prices for similar assets.

4 unchanged sentences

When available, fair value is determined by reference to quoted prices in the secondary markets for such assets.

After consideration of nonperformance risk, no additional adjustments were made to the fair value measurements of mortgage loans held for sale, IRLCs or hedging instruments.

After consideration of nonperformance risk, no additional adjustments were made to the fair value measurements of mortgage loans held for sale or hedging instruments.

AND SUBSIDIARIES

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• Level 3 – Valuation is typically derived from model-based techniques in which at least one significant input is unobservable and based on the Company’s own estimates about the assumptions that market participants would use to value the asset or liability.

The Company’s assets measured at fair value using Level 3 inputs on a recurring basis are its mortgage servicing rights and a limited number of mortgage loans held for sale with some degree of impairment affecting their marketability and for which reference to quoted prices in the secondary markets is not available.

The Company’s assets measured at fair value using Level 3 inputs on a recurring basis are as follows:

◦ Mortgage loans held for sale - For a limited number of mortgage loans held for sale with some degree of impairment affecting their marketability and for which reference to quoted prices in the secondary markets is not available, the fair value is calculated using an income approach whereby the net present value of the discounted cash flows is modeled using both a prepayment and a liquidation disposition.

The cash flow is then adjusted based on the probability of each disposition.

◦ Mortgage servicing rights - The fair value of mortgage servicing rights is derived utilizing a third-party model which calculates the present value of estimated future cash flows associated with the servicing asset.

Key assumptions to the model include prepayment rate, discount rate and delinquency rate.

◦ IRLCs - The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to sell mortgage loans with similar characteristics.

These valuations do not contain adjustments for expirations as any expired commitments are excluded from the fair value measurement.

The Company generally only issues IRLCs for products that meet specific purchaser guidelines.

Should any purchaser become insolvent, the Company would not be required to close the transaction based on the terms of the commitment.

Since not all IRLCs will become closed loans, the Company further adjusts its fair value measurements for the estimated amount of IRLCs that will not close.

The Company’s assets measured at fair value using Level 3 inputs that are typically reported at the lower of carrying value or fair value on a nonrecurring basis are as follows:

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For some of these loans, quoted prices in the secondary market are not available and therefore, a cash flow valuation model is used to determine fair value.

◦ Certain other mortgage loans, rental properties and real estate owned - Other mortgage loans include performing and nonperforming mortgage loans, which often become real estate owned through the foreclosure process.

The fair values of other mortgage loans, rental properties and real estate owned are determined based on the Company’s assessment of the value of the underlying collateral or the value of the property, as applicable.

◦ Certain other mortgage loans and real estate owned - Other mortgage loans include performing and nonperforming mortgage loans, which often become real estate owned through the foreclosure process.

The fair values of other mortgage loans and real estate owned are determined based on the Company’s assessment of the value of the underlying collateral or the value of the property, as applicable.

The Company uses different methods to assess the value of the properties, which may include broker price opinions, appraisals or cash flow valuation models.

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Interest rate lock commitments (4) Other assets and other liabilities — — ( 135.8 ) ( 135.8 )

Mortgage hedging instruments and commitments Other assets — 8.5 — 8.5

Level 3 Assets at Fair Value for the Year Ended September 30, 2022

Mortgage hedging instruments and commitments (5) Other assets and other liabilities — 317.8 — 317.8

Level 3 Assets and Liabilities at Fair Value for the Year Ended September 30, 2023

September 30, 2022 Net realized and unrealized gains (losses) Purchases / Originations Sales and Settlements Principal Reductions Net transfers to (out of) Level 3 Balance at

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Mortgage servicing rights (2) 10.6 0.2 52.4 ( 52.1 ) — — 11.1

Level 3 Assets at Fair Value for the Year Ended September 30, 2021

Interest rate lock commitments (4) ( 135.8 ) 104.2 — — — — ( 31.6 )

Level 3 Assets and Liabilities at Fair Value for the Year Ended September 30, 2022

September 30, 2021 Net realized and unrealized gains (losses) Purchases / Originations Sales and Settlements Principal Reductions Net transfers to (out of) Level 3 Balance at

1 unchanged sentence

(In millions)

Debt securities collateralized by residential real estate

$ 3.9 $ — $ — $ ( 3.9 ) $ — $ — $ —

Mortgage loans held for sale (1)

1 unchanged sentence

Mortgage servicing rights (2) 4.1 ( 1.2 ) 35.3 ( 27.6 ) — — 10.6

Interest rate lock commitments (4) 17.2 ( 153.0 ) — — — — ( 135.8 )

______________________

2 unchanged sentences

Mortgage loans held for sale valued using Level 3 inputs at September 30, 2023 and 2022 include $ 11.6 million and $ 14.1 million, respectively, of loans for which the Company elected the fair value option upon origination and did not sell into the secondary market.

Mortgage loans held for sale totaling $ 7.0 million were transferred to Level 3 during fiscal 2022 due to significant unobservable inputs used in determining the fair value of these loans.

Mortgage loans held for sale totaling $ 9.7 million and $ 7.0 million were transferred to Level 3 during fiscal 2023 and 2022, respectively, due to significant unobservable inputs used in determining the fair value of these loans.

The fair value of these mortgage loans held for sale is generally calculated considering pricing in the secondary market and adjusted for the value of the underlying collateral, including interest rate risk, liquidity risk and prepayment risk.

The Company plans to sell these loans as market conditions permit.

Mortgage loans totaling $ 0.4 million were transferred to Level 2 during fiscal 2021 because their fair value was based on actual quoted prices related to the pending sale of those loans in the secondary market.

(2) Although the majority of the Company’s mortgage loans are sold on a servicing-released basis, when the servicing rights are retained, the Company records them at fair value using third-party valuations.

1 unchanged sentence

The key assumptions used in the valuation, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 10 %, 11 % and 8 %, respectively, at September 30, 2023.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(3) Fair value measurements of these derivatives represent changes in fair value, as calculated by reference to quoted prices for similar assets, and are reflected in the balance sheet as other assets or accrued expenses and other liabilities.

1 unchanged sentence

The net fair value change in fiscal 2023 and 2022 recognized in revenues in the consolidated statements of operations was not significant.

(4) The fair value of interest rate lock commitments at September 30, 2022 reflects $ 47.7 million of servicing release premiums in other assets and a change in fair value of $ 183.5 million in other liabilities.

The fair value of interest rate lock commitments at September 30, 2021 reflects $ 17.9 million of servicing release premiums in other assets and a change in fair value of $ 0.7 million in other liabilities.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(4) The fair value of interest rate lock commitments at September 30, 2023 reflects a $ 2.3 million change in fair value in other assets and a $ 33.9 million change in fair value in other liabilities.

The fair value of interest rate lock commitments at September 30, 2022 reflects $ 47.7 million of servicing release premiums in other assets and a $ 183.5 million change in fair value in other liabilities.

(5) The fair value of mortgage hedging instruments and commitments at September 30, 2023 reflects a $ 153.6 million change in fair value in other assets and a $ 15.7 million change in fair value in other liabilities.

The fair value of mortgage hedging instruments and commitments at September 30, 2022 reflects a $ 330.2 million change in fair value in other assets and a $ 12.4 million change in fair value in other liabilities.

The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at September 30, 2023 and 2022.

Fair Value at September 30,

Balance Sheet Location 2022 2021

Level 2 Level 3 Level 2 Level 3

Balance Sheet Location Level 2 Level 3 Level 2 Level 3

(In millions)

Inventory held and used (1) (2) Inventories $ — $ 28.8 $ — $ —

Mortgage loans held for sale (1) (3)

3 unchanged sentences

______________________

(1) The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as a result of impairment in the respective period and were held at the end of the period.

(1) The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as a result of impairment at September 30, 2023 and 2022, respectively.

(2) In performing its impairment analysis of communities, a discount rate of 12 % was used in the period of impairment.

(3) These mortgage loans have some degree of impairment affecting their marketability and are valued at the lower of carrying value or fair value.

27 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-K

Item 8. Financial Statements and Supplementary Data