What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-24 compared with 2023-07-24 · 342 added, 484 removed, 435 unchanged (66% of the section changed)

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is the largest homebuilding company in the United States as measured by number of homes closed.

We construct and sell homes through our operating divisions in 113 markets across 33 states, primarily under the names of D.R.

Horton, America’s Builder, Emerald Homes, Express Homes and Freedom Homes.

We construct and sell homes through our operating divisions in 118 markets across 33 states.

Our common stock is included in the S&P 500 Index and listed on the New York Stock Exchange under the ticker symbol “DHI.” Unless the context otherwise requires, the terms “D.R.

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Horton, Inc., a Delaware corporation, and its predecessors and subsidiaries.

Our business operations consist of homebuilding, a majority-owned residential lot development company, financial services, rental and other activities.

Our homebuilding operations are our core business and primarily include the construction and sale of single-family homes with sales prices generally ranging from $200,000 to more than $1,000,000, with an average closing price of $381,100 during the nine months ended June 30, 2023.

Approximately 90% of our home sales revenue in the nine months ended June 30, 2023 was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

Our position as the most geographically diverse and largest volume homebuilder in the United States provides a strong platform for us to compete for new home sales.

Our business operations consist of homebuilding, rental, a majority-owned residential lot development company, financial services and other activities.

Approximately 88% of our home sales revenue in the three months ended December 31, 2023 was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

We have closed more than one million homes during our 45-year history, and we have been the largest volume homebuilder in the United States every year since 2002.

Our product offerings include a broad range of homes for entry-level, move-up, active adult and luxury buyers.

At June 30, 2023, we owned 63% of the outstanding shares of Forestar Group Inc.

(Forestar), a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar is a key part of our homebuilding strategy to expand relationships with land developers and control a large portion of our land and lot position through land purchase contracts.

Forestar has significantly expanded its business across many of our homebuilding operating markets over the last five years.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets.

DHI Mortgage, our wholly-owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers after origination.

Our wholly-owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination, underwriting and closing services, primarily related to our homebuilding transactions.

Our 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.

In addition to our homebuilding, Forestar, financial services and rental operations, we engage in other business activities through our subsidiaries.

We conduct insurance-related operations, own water rights and other water-related assets, own non-residential real estate including ranch land and improvements and own and operate energy-related assets.

The multi-family rental operations develop, construct, lease and sell residential rental properties, the majority of which are apartment communities.

At December 31, 2023, we owned 63% of the outstanding shares of Forestar Group Inc.

(Forestar), a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar operates across many of our homebuilding operating markets and is a key part of our homebuilding strategy to maintain relationships with land developers and to control a large portion of our land and lot position through land purchase contracts.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets.

Our wholly-owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination, underwriting and closing services primarily to our homebuilding customers.

In addition to our homebuilding, rental, Forestar and financial services operations, we engage in other business activities through our subsidiaries.

We conduct insurance-related operations, own water rights and other water-related assets and own 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 as other.

During the nine months ended June 30, 2023, our number of homes closed increased 1%, and our home sales revenues increased 2% compared to the prior year period.

Our consolidated revenues increased 5% to $25.0 billion in the nine months ended June 30, 2023 compared to $23.8 billion in the prior year period.

Our pre-tax income was $4.3 billion in the nine months ended June 30, 2023 compared to $5.6 billion in the prior year period, and our pre-tax operating margin was 17.2% compared to 23.3%.

Net income was $3.3 billion in the nine months ended June 30, 2023 compared to $4.2 billion in the prior year period, and our diluted earnings per share was $9.39 compared to $11.85.

In the trailing twelve months ended June 30, 2023, our return on equity (ROE) was 24.3% compared to 35.1% in the prior year period, and our homebuilding return on inventory (ROI) was 31.8% compared to 41.7%.

During the three months ended December 31, 2023, our number of homes closed increased 12%, and our home sales revenues increased 8% compared to the prior year period.

Our consolidated revenues increased 6% to $7.7 billion in the three months ended December 31, 2023 compared to $7.3 billion in the prior year period.

Our pre-tax income was $1.2 billion in the three months ended December 31, 2023 compared to $1.3 billion in the prior year period, and our pre-tax operating margin was 16.1% compared to 17.5%.

Net income was $955.7 million in the three months ended December 31, 2023 compared to $968.3 million in the prior year period, and our diluted earnings per share were $2.82 compared to $2.76.

In the trailing twelve months ended December 31, 2023, our return on equity (ROE) was 21.8% compared to 31.5% in the prior year period, and our homebuilding return on inventory (ROI) was 29.0% compared to 39.5%.

ROE is calculated as net income attributable to D.R.

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

Demand for new homes remained solid during the three months ended June 30, 2023 as our net sales orders only decreased 1% from the second quarter and increased 37% from the prior year quarter.

Although inflationary pressures and mortgage interest rates remain elevated, demand improved during the second and third quarters due to typical seasonal factors, coupled with our use of incentives and pricing adjustments to adapt to market conditions.

The disruptions in the supply chain for certain building materials and tightness in the labor market we experienced during the past two years have largely subsided, and our construction cycle times are improving.

Our homebuilding operating margins are lower than last year due to pricing adjustments, incentives and cost inflation, but margins improved sequentially in the third quarter as home prices and incentives have stabilized and some reductions in construction costs are being realized.

Although inflation and mortgage interest rates remain elevated, demand for new homes remained solid during the three months ended December 31, 2023, and our net sales orders increased 35% from the prior year quarter.

We are continuing to use incentives and pricing adjustments to adapt to current market conditions.

The disruptions in the supply chain for certain building materials and tightness in the labor market we experienced in recent years have largely subsided, and our construction cycle times have improved.

Although higher interest rates and economic uncertainty may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable.

We believe we are well-positioned to meet changing market conditions with our affordable product offerings and lot supply and will manage our home pricing, sales incentives and number of homes in inventory based on the level of homebuyer demand.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 75% of the lots owned and controlled at June 30, 2023 compared to 77% at September 30, 2022 and 78% at June 30, 2022.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 76% of the lots owned and controlled at December 31, 2023 compared to 75% at both September 30, 2023 and December 31, 2022.

We remain focused on our relationships with Forestar and other land developers across the country and expect to continue to control a substantial majority of our lot pipeline through purchase contracts .

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

Key financial results as of and for the three months ended June 30, 2023, as compared to the same period of 2022 unless otherwise indicated, were as follows:

Key financial results as of and for the three months ended December 31, 2023, as compared to the same period of 2022 unless otherwise indicated, were as follows:

Homebuilding:

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• Homebuilding SG&A expense was 8.3% of homebuilding revenues compared to 7.8%.

• Homebuilding pre-tax income was $1.5 billion compared to $2.0 billion.

• Homebuilding pre-tax income was $1.1 billion in both periods.

• Homebuilding pre-tax income was 15.0% of homebuilding revenues compared to 16.2%.

• Homebuilding cash and cash equivalents totaled $2.6 billion compared to $2.0 billion and $1.2 billion at September 30, 2022 and June 30, 2022, respectively.

• Homebuilding inventories totaled $18.0 billion compared to $17.3 billion and $17.9 billion at September 30, 2022 and June 30, 2022, respectively.

• Homes in inventory totaled 43,800 compared to 46,400 and 56,400 at September 30, 2022 and June 30, 2022, respectively.

• Owned lots totaled 137,500 compared to 131,100 at both September 30, 2022 and June 30, 2022.

Lots controlled through purchase contracts totaled 417,600 compared to 442,100 and 467,100 at September 30, 2022 and June 30, 2022, respectively.

• Homebuilding debt was $2.7 billion compared to $2.9 billion and $3.7 billion at September 30, 2022 and June 30, 2022, respectively.

• Homebuilding debt to total capital was 11.1% compared to 13.2% and 17.0% at September 30, 2022 and June 30, 2022, respectively.

Net homebuilding debt to total capital was 0.7% compared to 4.4% and 12.1% at September 30, 2022 and June 30, 2022, respectively.

• Homebuilding cash and cash equivalents totaled $2.5 billion compared to $2.9 billion and $2.0 billion at September 30, 2023 and December 31, 2022, respectively.

• Homebuilding inventories totaled $19.4 billion compared to $18.2 billion and $17.7 billion at September 30, 2023 and December 31, 2022, respectively.

• Homes in inventory totaled 42,600 compared to 42,000 and 43,200 at September 30, 2023 and December 31, 2022, respectively.

• Owned lots totaled 145,000 compared to 141,100 and 136,400 at September 30, 2023 and December 31, 2022, respectively.

Lots controlled through purchase contracts totaled 462,200 compared to 427,300 and 414,600 at September 30, 2023 and December 31, 2022, respectively.

• Homebuilding debt was $2.4 billion compared to $2.3 billion and $3.0 billion at September 30, 2023 and December 31, 2022, respectively.

• Rental revenues were $195.3 million compared to $327.5 million.

• Rental pre-tax income was $31.3 million compared to $110.3 million.

• Rental inventory totaled $3.0 billion compared to $2.7 billion and $2.9 billion at September 30, 2023 and December 31, 2022, respectively.

• Multi-family rental units closed totaled 300 in both periods.

• Single-family rental homes closed totaled 379 compared to 694.

• Forestar’s revenues increased 41% to $305.9 million compared to $216.7 million.

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Horton totaled 2,834 compared to 2,094.

• Forestar’s pre-tax income was $62.4 million compared to $52.7 million.

• Forestar’s pre-tax income increased 84% to $51.2 million compared to $27.9 million.

• Forestar’s pre-tax income was 16.7% of revenues compared to 12.9%.

• Forestar’s cash and cash equivalents totaled $401.0 million compared to $264.8 million and $146.3 million at September 30, 2022 and June 30, 2022, respectively.

• Forestar’s inventories totaled $1.9 billion compared to $2.0 billion and $2.1 billion at September 30, 2022 and June 30, 2022, respectively.

• Forestar’s owned and controlled lots totaled 73,000 compared to 90,100 and 97,000 at September 30, 2022 and June 30, 2022, respectively.

• Forestar’s cash and cash equivalents totaled $458.9 million compared to $616.0 million and $216.4 million at September 30, 2023 and December 31, 2022, respectively.

• Forestar’s inventories totaled $2.0 billion compared to $1.8 billion and $2.1 billion at September 30, 2023 and December 31, 2022, respectively.

• Forestar’s owned and controlled lots totaled 82,400 compared to 79,200 and 82,300 at September 30, 2023 and December 31, 2022, respectively.

Of these lots, 33,700 were under contract to sell to or subject to a right of first offer with D.R.

Horton compared to 36,700 and 38,400 at September 30, 2022 and June 30, 2022, respectively.

• Forestar’s debt was $707.2 million compared to $706.0 million and $705.6 million at September 30, 2022 and June 30, 2022, respectively.

• Forestar’s debt to total capital was 35.3% compared to 37.1% and 38.1% at September 30, 2022 and June 30, 2022, respectively.

Forestar’s net debt to total capital was 19.1% compared to 26.9% and 32.8% at September 30, 2022 and June 30, 2022, respectively.

Horton compared to 31,400 and 35,000 at September 30, 2023 and December 31, 2022, respectively.

• Forestar’s debt was $705.3 million compared to $695.0 million and $706.4 million at September 30, 2023 and December 31, 2022, respectively.

• Forestar’s debt to total capital was 33.4% compared to 33.7% and 36.7% at September 30, 2023 and December 31, 2022, respectively.

Forestar’s net debt to total capital was 14.9% compared to 5.5% and 28.7% at September 30, 2023 and December 31, 2022, respectively.

Financial Services:

• Financial services revenues decreased 10% to $228.5 million compared to $254.3 million.

• Financial services pre-tax income decreased 27% to $94.1 million compared to $128.3 million.

• Financial services revenues increased 41% to $192.6 million compared to $137.0 million.

• Financial services pre-tax income increased 263% to $66.0 million compared to $18.2 million.

• Financial services pre-tax income was 34.3% of financial services revenues compared to 13.3%.

• Rental revenues were $667.1 million compared to $109.7 million.

• Rental pre-tax income was $162.1 million compared to $42.6 million.

• Rental inventory totaled $3.3 billion compared to $2.6 billion and $2.0 billion at September 30, 2022 and June 30, 2022, respectively.

• Multi-family rental units closed totaled 230 compared to 298.

• Single-family rental homes closed totaled 1,754 compared to 84.

Consolidated Results:

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• Net income attributable to D.R.

Horton decreased 19% to $1.3 billion compared to $1.6 billion.

• Diluted net income per common share attributable to D.R.

Horton decreased 16% to $3.90 compared to $4.67.

• Stockholders’ equity was $21.7 billion compared to $19.4 billion and $18.1 billion at September 30, 2022 and June 30, 2022, respectively.

• Book value per common share increased to $64.03 compared to $56.39 and $52.00 at September 30, 2022 and June 30, 2022, respectively.

• Debt to total capital was 22.0% compared to 23.8% and 24.9% at September 30, 2022 and June 30, 2022, respectively.

Net debt to total capital was 11.2% compared to 15.4% and 19.3% at September 30, 2022 and June 30, 2022, respectively.

Key financial results for the nine months ended June 30, 2023, as compared to the same period of 2022, were as follows:

Homebuilding:

• Homebuilding revenues increased 2% to $22.9 billion compared to $22.5 billion.

• Homes closed increased 1% to 59,989 homes, and the average closing price of those homes increased 1% to $381,100.

• Net sales orders decreased 5% to 59,403 homes, and the value of net sales orders decreased 11% to $22.3 billion.

• Home sales gross margin was 22.9% compared to 28.9%.

• Homebuilding SG&A expense was 7.2% of homebuilding revenues compared to 6.9%.

• Homebuilding pre-tax income was $3.6 billion compared to $4.9 billion.

• Homebuilding pre-tax income was 15.8% of homebuilding revenues compared to 21.9%.

• Net cash provided by homebuilding operations was $2.1 billion compared to $124.5 million.

• Forestar’s revenues decreased 22% to $887.1 million compared to $1.1 billion.

Revenues in the current and prior year periods included $736.7 million and $977.8 million, respectively, of revenue from land and lot sales to our homebuilding segment.

• Forestar’s lots sold decreased 34% to 9,054 compared to 13,777.

Lots sold to D.R.

Horton totaled 7,947 compared to 11,823.

• Forestar’s pre-tax income was $126.2 million compared to $169.4 million.

• Forestar’s pre-tax income was 14.2% of revenues compared to 14.9%.

Financial Services:

• Financial services revenues decreased 12% to $582.0 million compared to $660.8 million.

• Financial services pre-tax income decreased 31% to $197.9 million compared to $288.2 million.

• Financial services pre-tax income was 34.0% of financial services revenues compared to 43.6%.

• Rental revenues were $1.2 billion compared to $489.1 million.

• Rental pre-tax income was $307.0 million compared to $215.1 million.

• Multi-family rental units closed totaled 530 compared to 775.

• Single-family rental homes closed totaled 3,169 compared to 678.

Consolidated Results:

• Consolidated revenues increased 5% to $25.0 billion compared to $23.8 billion.

• Consolidated pre-tax income decreased 23% to $4.3 billion compared to $5.6 billion.

• Consolidated pre-tax income was 17.2% of consolidated revenues compared to 23.3%.

• Income tax expense was $1.0 billion compared to $1.3 billion, and our effective tax rate was 23.9% compared to 23.7%.

• Net income attributable to D.R.

Horton decreased 23% to $3.2 billion compared to $4.2 billion.

Horton decreased 1% to $947.4 million compared to $958.7 million.

• Diluted net income per common share attributable to D.R.

Horton decreased 21% to $9.39 compared to $11.85.

• Net cash provided by operations was $2.3 billion compared to net cash used of $562.8 million.

Horton increased 2% to $2.82 compared to $2.76.

• Stockholders’ equity was $23.2 billion compared to $22.7 billion and $20.2 billion at September 30, 2023 and December 31, 2022, respectively.

• Book value per common share increased to $69.70 compared to $67.78 and $58.71 at September 30, 2023 and December 31, 2022, respectively.

• Debt to total capital was 18.6% compared to 18.3% and 22.0% at September 30, 2023 and December 31, 2022, respectively.

Net debt to total capital was 7.8% compared to 5.1% and 13.3% at September 30, 2023 and December 31, 2022, respectively.

RESULTS OF OPERATIONS - HOMEBUILDING

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Our financial statements and the notes thereto contain additional information regarding segment performance.

State Reporting Region/Market State Reporting Region/Market

Northwest Region Southeast Region (Continued)

Colorado Colorado Springs Florida Ocala

Denver Orlando

Fort Collins Pensacola/Panama City

Oregon Bend Port St.

Eugene/Springfield Tallahassee

Medford Tampa/Sarasota

Portland/Salem Volusia County

Utah Salt Lake City West Palm Beach

George Louisiana Baton Rouge

Washington Central Washington Lake Charles/Lafayette

Kennewick/Pasco/Richland Mississippi Gulf Coast

Seattle/Tacoma/Everett/Olympia

Spokane East Region

Vancouver Georgia Atlanta

Southwest Region Central Georgia

Arizona Phoenix Savannah

Tucson Valdosta

California Bakersfield North Carolina Asheville

Bay Area Charlotte

Fresno/Tulare Greensboro/Winston-Salem

Los Angeles County New Bern/Greenville

Modesto/Merced/Stockton Raleigh/Durham

Redding/Chico/Yuba City Wilmington

Riverside County South Carolina Charleston

Sacramento Columbia

San Bernardino County Greenville/Spartanburg

Hawaii Oahu Hilton Head

Nevada Las Vegas Myrtle Beach

Reno Tennessee Chattanooga

New Mexico Albuquerque Knoxville

South Central Region Nashville

Arkansas Northwest Arkansas Northeast Tennessee

Oklahoma Oklahoma City

Tulsa North Region

Texas Abilene Delaware Central Delaware

Austin Northern Delaware

Beaumont Illinois Chicago

Bryan/College Station Indiana Fort Wayne

Corpus Christi Indianapolis

Dallas Northwest Indiana

Fort Worth Iowa Des Moines

Houston Iowa City/Cedar Rapids

Killeen/Temple/Waco Kentucky Louisville

Lubbock Maryland Baltimore

Midland/Odessa Suburban Washington, D.C.

New Braunfels/San Marcos Western Maryland

San Antonio Minnesota Minneapolis/St.

Nebraska Omaha

Southeast Region New Jersey Northern New Jersey

Alabama Birmingham Southern New Jersey

Huntsville Ohio Cincinnati

Mobile/Baldwin County Columbus

Montgomery Pennsylvania Central Pennsylvania

Tuscaloosa Philadelphia

Florida Fort Myers/Naples Virginia Northern Virginia

Gainesville Richmond

Jacksonville Virginia Beach/Williamsburg

Lakeland Western Virginia

Melbourne/Vero Beach West Virginia Eastern West Virginia

Miami/Fort Lauderdale

The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three and nine months ended June 30, 2023 and 2022.

State Reporting Region/Market State Reporting Region/Market State Reporting Region/Market

Northwest Region Southeast Region North Region

Colorado Colorado Springs Alabama Baldwin County Delaware Northern Delaware

Denver Birmingham Southern Delaware

Fort Collins Huntsville Illinois Chicago

Oregon Bend Mobile Indiana Fort Wayne

Eugene/Springfield Montgomery Indianapolis

Medford Tuscaloosa Northwest Indiana

Portland/Salem Florida Fort Myers/Naples Iowa Des Moines

Utah Salt Lake City Gainesville Iowa City/Cedar Rapids

George Jacksonville Kentucky Louisville

Washington Central Washington Lakeland Maryland Baltimore

Kennewick/Pasco/Richland Melbourne/Vero Beach Eastern Maryland

Seattle/Tacoma/Everett/Olympia Miami/Fort Lauderdale Suburban Washington, D.C.

Spokane Ocala Western Maryland

Vancouver Orlando Minnesota Minneapolis/St.

Panama City Nebraska Omaha

Southwest Region Pensacola New Jersey Northern New Jersey

Arizona Phoenix Port St.

Lucie Southern New Jersey

Tucson Tallahassee Ohio Cincinnati

California Bakersfield Tampa/Sarasota Columbus

Bay Area Volusia County Pennsylvania Central Pennsylvania

Fresno/Tulare Louisiana Baton Rouge Philadelphia

Los Angeles County Lake Charles/Lafayette Pittsburgh

Modesto/Merced/Stockton Mississippi Gulf Coast Virginia Northern Virginia

Redding/Chico/Yuba City Jackson Richmond

Riverside County Virginia Beach/Williamsburg

Sacramento East Region Western Virginia

San Bernardino County Georgia Atlanta West Virginia Eastern West Virginia

Hawaii Oahu Augusta

Nevada Las Vegas Central Georgia

Reno Savannah

New Mexico Albuquerque Valdosta

North Carolina Asheville

South Central Region Charlotte

Arkansas Northwest Arkansas Greensboro/Winston-Salem

Oklahoma Oklahoma City New Bern/Greenville

Tulsa Raleigh/Durham/Fayetteville

Texas Abilene Wilmington

Austin South Carolina Charleston

Beaumont Columbia

Bryan/College Station Greenville/Spartanburg

Corpus Christi Hilton Head

Dallas Myrtle Beach

East Texas Tennessee Chattanooga

Fort Worth Knoxville

Houston Memphis

Killeen/Temple/Waco Nashville

Lubbock Northeast Tennessee

Midland/Odessa

New Braunfels/San Marcos

The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three months ended December 31, 2023 and 2022.

Net Sales Orders (1)

Three Months Ended June 30,

Net Homes Sold Value (In millions) Average Selling Price

Change 2023 2022 %

Northwest 1,208 886 36 % $ 647.2 $ 532.8 21 % $ 535,800 $ 601,400 (11) %

Southwest 2,815 1,967 43 % 1,345.6 1,038.1 30 % 478,000 527,800 (9) %

South Central 6,078 5,176 17 % 2,029.6 1,888.3 7 % 333,900 364,800 (8) %

Southeast 6,021 3,979 51 % 2,182.9 1,612.7 35 % 362,500 405,300 (11) %

East 4,547 3,274 39 % 1,615.0 1,265.8 28 % 355,200 386,600 (8) %

North 2,210 1,411 57 % 899.7 603.0 49 % 407,100 427,400 (5) %

22,879 16,693 37 % $ 8,720.0 $ 6,940.7 26 % $ 381,100 $ 415,800 (8) %

Nine Months Ended June 30,

Three Months Ended December 31,

Net Homes Sold Value (In millions) Average Selling Price

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Sales Order Cancellations

Three Months Ended June 30,

Cancelled Sales Orders Value (In millions) Cancellation Rate (2)

2023 2022 2023 2022 2023 2022

Northwest 211 204 $ 115.8 $ 120.7 15 % 19 %

Southwest 487 646 241.7 314.7 15 % 25 %

South Central 1,427 1,801 491.9 614.2 19 % 26 %

Southeast 1,404 1,450 500.6 522.1 19 % 27 %

East 910 668 321.8 248.3 17 % 17 %

North 476 382 191.1 156.9 18 % 21 %

4,915 5,151 $ 1,862.9 $ 1,976.9 18 % 24 %

Nine Months Ended June 30,

Three Months Ended December 31,

Cancelled Sales Orders Value (In millions) Cancellation Rate (2)

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Net Sales Orders

The number of net sales orders increased 37% and decreased 5% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods.

The value of net sales orders increased 26% to $8.7 billion (22,879 homes) and decreased 11% to $22.3 billion (59,403 homes) for the three and nine months ended June 30, 2023, respectively, compared to $6.9 billion (16,693 homes) and $24.9 billion (62,555 homes) in the prior year periods.

The average selling price of net sales orders during the three and nine months ended June 30, 2023 was $381,100 and $375,000, respectively, down 8% and 6% from the prior year periods.

Demand for new homes remained solid during the three months ended June 30, 2023 as our net sales orders only decreased 1% from the second quarter and increased 37% from the prior year quarter.

Although inflationary pressures and mortgage interest rates remain elevated, demand improved during the second and third quarters due to typical seasonal factors, coupled with an increased use of incentives and pricing adjustments to adapt to changing market conditions.

The number of net sales orders increased 35% in the three months ended December 31, 2023 compared to the prior year period, and the value of net sales orders increased 38% to $6.8 billion (18,069 homes) compared to $4.9 billion (13,382 homes), with significant increases in all regions.

The average selling price of net sales orders during the three months ended December 31, 2023 was $375,800, up 2% from the prior year period.

The markets contributing most to the increases in sales order volume were:

the Salt Lake City and Denver markets in the Northwest;

the Phoenix, California and Las Vegas markets in the Southwest;

the Dallas market in the South Central;

the Florida markets (particularly Tampa) in the Southeast;

the Carolina (particularly Raleigh), Knoxville and Atlanta markets in the East;

and the Washington, D.C., Ohio, Indiana and Minnesota markets in the North.

Despite continued inflationary pressures and elevated mortgage interest rates, demand for new homes remained solid during the first quarter, and our net sales orders increased 35% from the prior year quarter.

We are continuing to use incentives and pricing adjustments to adapt to current market conditions.

We believe we are well-positioned to meet changing market conditions with our affordable product offerings and lot supply.

The markets contributing most to the increases in sales order volume during the three months ended June 30, 2023 were:

the Salt Lake City market in the Northwest;

the Phoenix, Northern California and Las Vegas markets in the Southwest;

the Houston and Fort Worth markets in the South Central;

the Florida markets (particularly Tampa) in the Southeast;

the Carolina markets (particularly Raleigh) in the East;

and the Indiana and Ohio markets in the North.

The number of net sales orders decreased 5% in the nine months ended June 30, 2023 compared to the prior year period.

The markets contributing most to the decreases in sales order volume were the Southern California and Phoenix markets in the Southwest and the Dallas and San Antonio markets in the South Central.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 18% and 20% in the three and nine months ended June 30, 2023, respectively, compared to 24% and 18% in the prior year periods.

Sales Order Backlog

As of June 30,

As of December 31,

Homes in Backlog Value (In millions) Average Selling Price

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Homes Closed and Home Sales Revenue

Three Months Ended June 30,

Homes Closed Value (In millions) Average Selling Price

Change 2023 2022 %

Northwest 1,209 1,194 1 % $ 653.6 $ 673.9 (3) % $ 540,600 $ 564,400 (4) %

Southwest 2,316 2,539 (9) % 1,120.1 1,288.9 (13) % 483,600 507,600 (5) %

South Central 6,477 6,117 6 % 2,169.7 2,077.3 4 % 335,000 339,600 (1) %

Southeast 6,616 5,740 15 % 2,384.0 2,111.7 13 % 360,300 367,900 (2) %

East 4,102 3,782 8 % 1,464.2 1,385.4 6 % 356,900 366,300 (3) %

North 2,265 1,936 17 % 911.5 799.2 14 % 402,400 412,800 (3) %

22,985 21,308 8 % $ 8,703.1 $ 8,336.4 4 % $ 378,600 $ 391,200 (3) %

Nine Months Ended June 30,

Three Months Ended December 31,

Homes Closed Value (In millions) Average Selling Price

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Home Sales Revenue

Revenues from home sales were $8.7 billion (22,985 homes closed) for the three months ended June 30, 2023 compared to $8.3 billion (21,308 homes closed) in the prior year period.

Revenues from home sales were $22.9 billion (59,989 homes closed) for the nine months ended June 30, 2023 compared to $22.5 billion (59,532 homes closed) in the prior year period.

The number of homes closed increased 8% and 1% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods.

The markets contributing most to the increases in closings volume in both periods were the Indianapolis market in the North and the Florida markets (particularly Tampa) in the Southeast.

The largest decrease in closings volume was in our Southwest region and was primarily due to the California markets (particularly Southern California) in both periods.

Revenues from home sales were $7.3 billion (19,340 homes closed) for the three months ended December 31, 2023 compared to $6.7 billion (17,340 homes closed) in the prior year period.

The number of homes closed increased 12% in the three months ended December 31, 2023 compared to the prior year period, with increases in all regions.

The average selling price of homes closed during the three months ended December 31, 2023 was $376,200, down 3% from the prior year period.

The markets contributing most to the increases in closings volume were:

the Salt Lake City market in the Northwest;

the California and Las Vegas markets in the Southwest;

the Fort Worth market in the South Central;

the Alabama markets in the Southeast;

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

and the Washington, D.C.

and Ohio markets in the North.

Homebuilding Operating Margin Analysis

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Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Gross profit – home sales 22.9 % 23.9 %

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Home Sales Gross Profit

Gross profit from home sales decreased to $2.0 billion in the three months ended June 30, 2023 from $2.5 billion in the prior year period and decreased 680 basis points to 23.3% as a percentage of home sales revenues.

The percentage decrease resulted from a decrease of 700 basis points due to the average cost of our homes closed increasing while the average selling price of those homes decreased, partially offset by 20 basis points due to a decrease in warranty and construction defect costs.

Gross profit from home sales decreased to $5.2 billion in the nine months ended June 30, 2023 from $6.5 billion in the prior year period and decreased 600 basis points to 22.9% as a percentage of home sales revenues.

The percentage decrease resulted from a decrease of 620 basis points due to the average cost of our homes closed increasing by more than the average selling price of those homes, partially offset by 10 basis points due to a decrease in the amortization of capitalized interest and 10 basis points due to a decrease in warranty and construction defect costs.

Gross profit from home sales increased to $1.7 billion in the three months ended December 31, 2023 from $1.6 billion in the prior year period and decreased 100 basis points to 22.9% as a percentage of home sales revenues.

The percentage decrease resulted from a decrease of 80 basis points primarily due to a decrease in the value of hedging instruments we use to offer below market interest rate financing to our homebuyers, 20 basis points due to an increase in warranty and construction defect costs and 10 basis points due to an increase in the amount of purchase accounting adjustments related to prior year acquisitions, partially offset by 10 basis points due to a decrease in the amortization of capitalized interest.

We remain focused on managing the pricing, incentives and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions and new home demand.

To adjust to changing market conditions and higher mortgage interest rates, we increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers.

We expect to continue offering a higher level of incentives throughout fiscal 2023 as compared to fiscal 2022.

To adjust to changes in market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers.

Based on current market conditions, we expect our incentive levels to remain elevated throughout fiscal 2024.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $30.5 million and $85.2 million in the three and nine months ended June 30, 2023, respectively, and $11.4 million and $42.0 million in the comparable periods of fiscal 2022.

Land/lot sales and other revenues from our homebuilding operations were $20.3 million and $34.8 million in the three months ended December 31, 2023 and 2022, respectively.

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

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We may also sell residential lots or land parcels to manage our supply or for other strategic reasons.

As of June 30, 2023, our homebuilding operations had $8.4 million of land held for sale that we expect to sell in the next twelve months.

As of December 31, 2023, our homebuilding operations had $3.5 million of land held for sale that we expect to sell in the next twelve months.

Inventory and Land Option Charges

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

As a result of this review, there were no impairment charges recorded in our homebuilding segment during the three months ended June 30, 2023 and $5.7 million of impairments recorded in our homebuilding segment during the nine months ended June 30, 2023.

There were no impairment charges recorded in our homebuilding segment in the prior year periods.

As a result of this review, there were no impairment charges recorded in our homebuilding segment during the three months ended December 31, 2023 compared to $4.8 million in the prior year quarter.

As we manage our inventory investments across our operating markets to optimize returns and cash flows, we may modify our pricing and incentives, construction and development plans or land sale strategies in individual active communities and land held for development, which could result in the affected communities being evaluated for potential impairment.

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

During the three and nine months ended June 30, 2023, earnest money and pre-acquisition cost write-offs related to our homebuilding segment’s land purchase contracts that we have terminated or expect to terminate were $9.0 million and $41.7 million, respectively, compared to $9.5 million and $23.2 million in the same periods of fiscal 2022.

During the three months ended December 31, 2023, earnest money and pre-acquisition cost write-offs related to our homebuilding segment’s land purchase contracts that we have terminated or expect to terminate were $5.5 million compared to $19.4 million in the same period of fiscal 2023.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 6% to $584.9 million and $1.7 billion in the three and nine months ended June 30, 2023, respectively, from $553.2 million and $1.6 billion in the prior year periods.

SG&A expense as a percentage of homebuilding revenues was 6.7% and 7.2% in the three and nine months ended June 30, 2023, respectively, compared to 6.6% and 6.9% in the prior year periods.

Employee compensation and related costs were $502.3 million and $1.4 billion in the three and nine months ended June 30, 2023, respectively, compared to $445.7 million and $1.3 billion in the same periods of fiscal 2022.

Employee compensation and related costs represented 86% and 83% of SG&A costs in the three and nine months ended June 30, 2023, respectively, compared to 81% and 82% in the prior year periods.

These costs increased 13% and 8% in the three and nine months ended June 30, 2023, respectively, from the prior year periods.

Our homebuilding operations employed 9,584 and 9,590 people at June 30, 2023 and 2022, respectively.

SG&A expense from homebuilding activities increased 14% to $603.4 million in the three months ended December 31, 2023 from $527.1 million in the prior year period.

SG&A expense as a percentage of homebuilding revenues was 8.3% in the three months ended December 31, 2023 compared to 7.8% in the prior year period.

Employee compensation and related costs were $487.3 million in the three months ended December 31, 2023 compared to $425.3 million in the same period of fiscal 2023 and represented 81% of SG&A costs in both periods.

These costs increased 15% in the three months ended December 31, 2023 from the prior year period.

Our homebuilding operations employed 9,429 and 8,941 people at December 31, 2023 and 2022, respectively.

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

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Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer.

Interest incurred by our homebuilding operations was $17.2 million and $57.1 million in the three and nine months ended June 30, 2023, respectively, compared to $27.9 million and $78.3 million in the prior year periods.

Interest charged to cost of sales was 0.4% of homebuilding cost of sales (excluding inventory and land option charges) in both the three and nine months ended June 30, 2023 compared to 0.5% in both prior year periods.

Other income, net of other expenses, included in our homebuilding operations increased to $26.4 million and $54.1 million in the three and nine months ended June 30, 2023, respectively, from $3.7 million and $11.6 million in the prior year periods, primarily due to an increase in interest income.

Interest incurred by our homebuilding operations decreased 45% to $11.4 million in the three months ended December 31, 2023 compared to $20.9 million in the prior year period, primarily due to a 23% decrease in our average homebuilding debt.

Interest charged to cost of sales was 0.4% of homebuilding cost of sales (excluding inventory and land option charges) in both periods.

Other income, net of other expenses, included in our homebuilding operations increased to $29.5 million in the three months ended December 31, 2023 from $13.3 million in the prior year period, primarily due to an increase in interest income.

Other income consists of interest income and various other types of ancillary income, gains, expenses and losses not directly associated with sales of homes, land and lots.

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

Business Acquisitions

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

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

In June 2023, we 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.

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

Homebuilding Results by Reporting Region

Three Months Ended June 30,

Revenues Homebuilding

Income (1) % of

Revenues Homebuilding

Income (1) % of

(In millions)

Northwest $ 661.1 $ 105.6 16.0 % $ 674.0 $ 161.0 23.9 %

Southwest 1,134.3 131.2 11.6 % 1,289.2 288.3 22.4 %

South Central 2,175.0 407.2 18.7 % 2,080.4 527.2 25.3 %

Southeast 2,384.5 459.8 19.3 % 2,118.9 532.4 25.1 %

East 1,464.4 262.0 17.9 % 1,385.8 309.9 22.4 %

North 914.3 98.6 10.8 % 799.5 135.9 17.0 %

$ 8,733.6 $ 1,464.4 16.8 % $ 8,347.8 $ 1,954.7 23.4 %

Nine Months Ended June 30,

Three Months Ended December 31,

Revenues Homebuilding

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The amortization of capitalized interest and property taxes is allocated to each segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each segment based on the segment’s inventory balances.

Northwest Region — Homebuilding revenues decreased 2% in the three months and were essentially flat in the nine months ended June 30, 2023 compared to the prior year periods.

The region generated pre-tax income of $105.6 million and $260.6 million in the three and nine months ended June 30, 2023, respectively, compared to $161.0 million and $421.0 million in the prior year periods.

Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) decreased by 730 and 820 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing while the average selling price decreased slightly.

As a percentage of homebuilding revenues, SG&A expenses increased by 80 and 50 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to a slight increase in SG&A expenses.

Southwest Region — Homebuilding revenues decreased 12% and 14% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to decreases in the number of homes closed, particularly in our California markets.

The region generated pre-tax income of $131.2 million and $296.9 million in the three and nine months ended June 30, 2023, respectively, compared to $288.3 million and $674.2 million in the prior year periods.

Home sales gross profit percentage decreased by 1,030 and 870 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing while the average selling price decreased slightly.

As a percentage of homebuilding revenues, SG&A expenses increased by 60 and 110 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the decrease in homebuilding revenues.

South Central Region — Homebuilding revenues increased 5% in the three months and were essentially flat in the nine months ended June 30, 2023 compared to the prior year periods.

The region generated pre-tax income of $407.2 million and $956.8 million in the three and nine months ended June 30, 2023, respectively, compared to $527.2 million and $1.3 billion in the prior year periods.

Home sales gross profit percentage decreased by 650 and 590 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing by more than the average selling price.

As a percentage of homebuilding revenues, SG&A expenses increased 30 basis points in both the three and nine months ended June 30, 2023 compared to the prior year periods, primarily due to increases in SG&A expenses.

Southeast Region — Homebuilding revenues increased 13% and 10% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed, particularly in our Florida markets.

The region generated pre-tax income of $459.8 million and $1.3 billion in the three and nine months ended June 30, 2023, respectively, compared to $532.4 million and $1.4 billion in the prior year periods.

Home sales gross profit percentage decreased by 690 and 530 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing by more than the average selling price.

As a percentage of homebuilding revenues, SG&A expenses decreased by 80 and 20 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

East Region — Homebuilding revenues increased 6% and 4% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods.

The region generated pre-tax income of $262.0 million and $634.9 million in the three and nine months ended June 30, 2023, respectively, compared to $309.9 million and $778.1 million in the prior year periods.

Home sales gross profit percentage decreased by 460 and 440 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing by more than the average selling price.

As a percentage of homebuilding revenues, SG&A expenses increased by 10 and 30 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to increases in SG&A expenses.

North Region — Homebuilding revenues increased 14% and 7% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed, particularly in our Indianapolis market.

The region generated pre-tax income of $98.6 million and $224.7 million in the three and nine months ended June 30, 2023, respectively, compared to $135.9 million and $339.7 million in the prior year periods.

Home sales gross profit percentage decreased by 630 and 620 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to the average cost of homes closed increasing while the average selling price decreased slightly.

As a percentage of homebuilding revenues, SG&A expenses increased by 30 and 60 basis points in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods, primarily due to increases in SG&A expenses.

Northwest Region — Homebuilding revenues increased 11% in the three months ended December 31, 2023 compared to the prior year period due to increases in the number of homes closed, particularly in our Salt Lake City market.

The region generated pre-tax income of $69.5 million in the three months ended December 31, 2023 compared to $58.7 million in the prior year period.

Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 60 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing by more than the average selling price of those homes.

As a percentage of homebuilding revenues, SG&A expenses increased by 10 basis points in the three months ended December 31, 2023 compared to the prior year period.

Southwest Region — Homebuilding revenues increased 31% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our California and Las Vegas markets.

The region generated pre-tax income of $134.9 million in the three months ended December 31, 2023 compared to $84.0 million in the prior year period.

Home sales gross profit percentage increased by 10 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to a slight increase in the average selling price of homes closed.

As a percentage of homebuilding revenues, SG&A expenses decreased by 150 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 2% in the three months ended December 31, 2023 compared to the prior year period.

The region generated pre-tax income of $271.6 million in the three months ended December 31, 2023 compared to $281.6 million in the prior year period.

Home sales gross profit percentage decreased by 70 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average selling price of homes closed decreasing by more than the average cost of those homes.

As a percentage of homebuilding revenues, SG&A expenses increased 50 basis points in the three months ended December 31, 2023 compared to the prior year period.

Southeast Region — Homebuilding revenues were flat in the three months ended December 31, 2023 compared to the prior year period.

The region generated pre-tax income of $329.4 million in the three months ended December 31, 2023 compared to $411.3 million in the prior year period.

Home sales gross profit percentage decreased by 360 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed increasing while the average selling price of those homes decreased.

As a percentage of homebuilding revenues, SG&A expenses increased by 90 basis points in the three months ended December 31, 2023 compared to the prior year period.

East Region — Homebuilding revenues increased 11% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our Carolina markets.

The region generated pre-tax income of $204.6 million in the three months ended December 31, 2023 compared to $189.4 million in the prior year period.

Home sales gross profit percentage increased by 40 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing by more than the average selling price of those homes.

As a percentage of homebuilding revenues, SG&A expenses increased by 90 basis points in the three months ended December 31, 2023 compared to the prior year period.

North Region — Homebuilding revenues increased 14% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our Washington, D.C.

and Ohio markets.

The region generated pre-tax income of $86.1 million in the three months ended December 31, 2023 compared to $69.4 million in the prior year period.

Home sales gross profit percentage increased by 300 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing, while the average selling price of those homes increased.

As a percentage of homebuilding revenues, SG&A expenses increased by 50 basis points in the three months ended December 31, 2023 compared to the prior year period.

HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY

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We manage our inventory of owned land and lots and homes under construction relative to demand in each of our markets, including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory.

Our homebuilding segment’s inventories at June 30, 2023 and September 30, 2022 are summarized as follows:

June 30, 2023

Our homebuilding segment’s inventories at December 31, 2023 and September 30, 2023 are summarized as follows:

December 31, 2023

Construction in Progress and

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(1) Corporate and unallocated inventory consists primarily of capitalized interest and property taxes.

Our land and lot position and homes in inventory at June 30, 2023 and September 30, 2022 are summarized as follows:

June 30, 2023

Our land and lot position and homes in inventory at December 31, 2023 and September 30, 2023 are summarized as follows:

December 31, 2023

Owned (1) Lots Controlled

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___________________

(1) Land/lots owned included approximately 45,800 and 37,600 owned lots that are fully developed and ready for home construction at June 30, 2023 and September 30, 2022, respectively.

Land/lots owned also included land held for development representing 400 lots at both June 30, 2023 and September 30, 2022.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2023 and September 30, 2022 was $19.8 billion and $19.7 billion, respectively, secured by earnest money deposits of $1.7 billion and $1.6 billion, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at June 30, 2023 and September 30, 2022 included $1.3 billion and $1.4 billion, respectively, related to lot purchase contracts with Forestar, secured by $121.2 million and $131.7 million, respectively, of earnest money.

(3) Lots controlled at June 30, 2023 included approximately 30,500 lots owned or controlled by Forestar, 13,600 of which our homebuilding divisions had under contract to purchase and 16,900 of which our homebuilding divisions had a right of first offer to purchase.

(1) Land/lots owned included approximately 55,600 and 50,300 owned lots that are fully developed and ready for home construction at December 31, 2023 and September 30, 2023, respectively.

(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2023 and September 30, 2023 was $22.5 billion and $21.1 billion, respectively, secured by earnest money deposits of $1.9 billion and $1.8 billion, respectively.

The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2023 and September 30, 2023 included $1.5 billion and $1.3 billion, respectively, related to lot purchase contracts with Forestar, secured by $161.7 million and $139.1 million, respectively, of earnest money.

(3) Lots controlled at December 31, 2023 included approximately 33,700 lots owned or controlled by Forestar, 16,200 of which our homebuilding divisions had under contract to purchase and 17,500 of which our homebuilding divisions had a right of first offer to purchase.

Of these, approximately 12,800 lots were in our Southeast region, 5,700 lots were in our East region, 5,100 lots were in our South Central region, 4,400 lots were in our North region, 3,800 lots were in our Southwest region and 1,900 lots were in our Northwest region.

Lots controlled at September 30, 2023 included approximately 31,400 lots owned or controlled by Forestar, 14,400 of which our homebuilding divisions had under contract to purchase and 17,000 of which our homebuilding divisions had a right of first offer to purchase.

(4) Approximately 25,000 and 27,200 of our homes in inventory were unsold at June 30, 2023 and September 30, 2022, respectively.

At June 30, 2023, approximately 5,700 of our unsold homes were completed, of which approximately 600 homes had been completed for more than six months.

(4) Approximately 28,800 and 27,000 of our homes in inventory were unsold at December 31, 2023 and September 30, 2023, respectively.

At December 31, 2023, approximately 9,000 of our unsold homes were completed, of which approximately 730 homes had been completed for more than six months.

At September 30, 2023, approximately 7,000 of our unsold homes were completed, of which approximately 620 homes had been completed for more than six months.

Homes in inventory exclude approximately 2,000 and 1,800 model homes at June 30, 2023 and September 30, 2022, respectively.

Homes in inventory exclude approximately 2,200 and 2,100 model homes at December 31, 2023 and September 30, 2023, respectively.

RESULTS OF OPERATIONS - RENTAL

Our 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, with a primary focus on constructing garden style apartment communities in high growth suburban markets.

Single-family and multi-family rental property sales are recognized as revenues, and rental income is recognized as other income.

The following tables provide further information regarding our rental operations as of and for the three months ended December 31, 2023 and 2022.

Rental Homes/Units Closed

Three Months Ended December 31,

Single-family rental homes 379 694

Multi-family rental units 300 300

Results of Operations

(In millions)

Single-family rental $ 116.1 $ 228.0

Multi-family rental and other 79.2 99.5

Total revenues 195.3 327.5

Cost of sales

Single-family rental 87.2 136.8

Multi-family rental and other 54.5 47.0

Inventory and land option charges — 0.9

Total cost of sales 141.7 184.7

Selling, general and administrative expense 47.4 47.5

Other (income) expense (25.1) (15.0)

Income before income taxes $ 31.3 $ 110.3

Revenues from our rental operations decreased to $195.3 million during the three months ended December 31, 2023 from $327.5 million in the prior year period, and pre-tax income decreased to $31.3 million from $110.3 million.

The decreases were primarily due to fewer rental home and unit closings during the three months ended December 31, 2023 compared to the prior year period.

At December 31, 2023, our rental property inventory of $3.0 billion included $1.4 billion of inventory related to our single-family rental operations and $1.6 billion of inventory related to our multi-family rental operations.

At September 30, 2023, our rental property inventory of $2.7 billion included $1.3 billion of inventory related to our single-family rental operations and $1.4 billion of inventory related to our multi-family rental operations.

Single-family rental homes and lots and multi-family rental units at December 31, 2023 and September 30, 2023 consisted of the following:

Rental Inventory

2023 September 30,

Single-family rental homes (1) 5,820 5,630

Single-family rental lots (2) 2,980 3,380

Multi-family rental units (3) 10,200 9,150

________________________

(1) Single-family rental homes at December 31, 2023 consist of 900 homes under construction and 4,920 completed homes.

Single-family rental homes at September 30, 2023 consist of 1,260 homes under construction and 4,370 completed homes.

(2) Single-family rental lots at December 31, 2023 consist of 1,935 undeveloped lots and 1,045 finished lots.

Single-family rental lots at September 30, 2023 consist of 2,210 undeveloped lots and 1,170 finished lots.

(3) Multi-family rental units at December 31, 2023 consist of 8,070 units under construction and 2,130 units that were substantially complete and in the lease-up phase.

Multi-family rental units at September 30, 2023 consist of 7,200 units under construction and 1,950 units that were substantially complete and in the lease-up phase.

RESULTS OF OPERATIONS – FORESTAR

At June 30, 2023, we owned 63% of the outstanding shares of Forestar.

Forestar is a publicly traded residential lot development company with operations in 52 markets across 20 states as of June 30, 2023.

At December 31, 2023, we owned 63% of the outstanding shares of Forestar.

Forestar is a publicly traded residential lot development company with operations in 57 markets across 23 states as of December 31, 2023.

(See Note B to the accompanying financial statements for additional Forestar segment information.)

Results of operations for the Forestar segment for the three and nine months ended June 30, 2023 and 2022 were as follows:

Results of operations for the Forestar segment for the three months ended December 31, 2023 and 2022 were as follows:

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

(In millions)

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Forestar’s revenues are primarily derived from sales of single-family residential lots to local, regional and national homebuilders and land bankers for homebuilders.

The following tables provide further information regarding Forestar’s revenues and lot position as of and for the three and nine months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Lots Closed Value (In millions)

2023 2022 2023 2022

Residential single-family lots sold

Lots sold to D.R.

Horton 3,187 3,038 $ 271.0 $ 258.1

Total lots sold 3,812 3,473 $ 334.8 $ 295.1

Tract acres sold to D.R.

Horton 45 0 $ 22.8 $ —

Nine Months Ended June 30,

Lots Closed Value (In millions)

The following tables provide further information regarding Forestar’s revenues and lot position as of and for the three months ended December 31, 2023 and 2022:

Three Months Ended December 31,

Lots Sold Value (In millions)

2023 2022 2023 2022

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Total lots sold 3,150 2,263 $ 304.2 $ 206.7

Tract acres sold to D.R.

Horton 424 0 $ 55.3 $ —

2023 September 30,

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Owned lots fully developed 7,300 6,400

At June 30, 2023 and September 30, 2022, Forestar’s inventory, which includes land and lots developed, under development and held for development, totaled $1.9 billion and $2.0 billion, respectively.

Forestar’s inventory and land option charges during the nine months ended June 30, 2023 and 2022 included impairment charges of $19.4 million and $3.8 million, respectively.

There were no inventory impairments recorded during the three month periods ended June 30, 2023 and 2022.

SG&A expense for the three and nine months ended June 30, 2023 included charges of $0.9 million and $2.8 million, respectively, related to the shared services agreement between Forestar and D.R.

At December 31, 2023 and September 30, 2023, Forestar’s inventory, which includes land and lots developed, under development and held for development, totaled $2.0 billion and $1.8 billion, respectively.

SG&A expense for the three months ended December 31, 2023 and 2022 included charges of $1.3 million and $0.9 million, respectively, related to the shared services agreement between Forestar and D.R.

Horton whereby D.R.

Horton provides Forestar with certain administrative, compliance, operational and procurement services.

Shared services charges were $1.1 million and $3.1 million, respectively, in the same periods of fiscal 2022.

RESULTS OF OPERATIONS – FINANCIAL SERVICES

The following tables and related discussion set forth key operating and financial data for our financial services operations, comprising DHI Mortgage and our subsidiary title companies, for the three and nine months ended June 30, 2023 and 2022.

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 % Change 2023 2022 % Change

Three Months Ended December 31,

2023 2022 % Change

Number of first-lien loans originated or brokered by DHI Mortgage for D.R.

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Loans sold by DHI Mortgage to third parties 16,927 15,167 12 %

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 % Change 2023 2022 % Change

Three Months Ended December 31,

2023 2022 % Change

(In millions)

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Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

General and administrative expense 78.7 % 97.9 %

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Mortgage Loan Activity

The volume of loans originated by our mortgage operations is directly related to the number of homes closed by our homebuilding operations.

In the three and nine months ended June 30, 2023, while the number of homes closed by our homebuilding operations increased 8% and 1%, respectively, from the prior year periods, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 15% and 12%, respectively, due to an increase in the percentage of homes closed for which DHI Mortgage handled our homebuyers’ financing.

Homes closed by our homebuilding operations constituted 99% of DHI Mortgage loan originations in both the three and nine months ended June 30, 2023 compared to 99% and 98%, respectively, in the prior year periods.

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

The number of loans sold increased 3% and 10% in the three and nine months ended June 30, 2023, respectively, compared to the prior year periods.

Virtually all of the mortgage loans held for sale on June 30, 2023 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae).

During the nine months ended June 30, 2023, approximately 59% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 39% were sold to one other major financial entity.

DHI Mortgage’s primary focus is to originate loans for our homebuilding operations, and those loan originations account for almost all of its total loan volume.

In the three months ended December 31, 2023, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 14%, primarily due to a 12% increase in the number of homes closed by our homebuilding operations.

The percentage of homes closed for which DHI Mortgage handled our homebuyers’ financing was 78% in the three months ended December 31, 2023, up from 77% in the prior year period.

The number of loans sold increased 12% in the three months ended December 31, 2023 compared to the prior year period.

Virtually all of the mortgage loans held for sale on December 31, 2023 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae).

During the three months ended December 31, 2023, approximately 71% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 28% were sold to one other major financial entity.

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

Financial Services Revenues and Expenses

Revenues from our mortgage operations decreased 15% to $178.8 million and 16% to $447.1 million in the three and nine months ended June 30, 2023, respectively, from $209.7 million and $533.7 million in the prior year periods.

The decreases were primarily due to lower gains on sales of mortgages resulting from a more competitive environment in the mortgage industry due to rising interest rates.

Revenues from our title operations increased 11% to $49.7 million and 6% to $134.9 million in the three and nine months ended June 30, 2023, respectively, from $44.6 million and $127.1 million in the prior year periods.

General and administrative (G&A) expense related to our financial services operations increased 13% to $154.7 million and 9% to $435.7 million in the three and nine months ended June 30, 2023, respectively, from $137.3 million and $400.6 million in the prior year periods.

As a percentage of financial services revenues, G&A expense was 67.7% and 74.9% in the three and nine months ended June 30, 2023, respectively, compared to 54.0% and 60.6% in the prior year periods.

Total loan origination volume increased 13% in the three months ended December 31, 2023, and revenues from our mortgage operations increased 55% to $148.1 million from $95.7 million in the prior year period.

The increase in revenues was primarily due to higher gains on sales of mortgages resulting from improved loan sale execution in the secondary market.

Revenues from our title operations increased 8% to $44.5 million in the three months ended December 31, 2023 from $41.3 million in the prior year period.

General and administrative (G&A) expense related to our financial services operations increased 13% to $151.5 million in the three months ended December 31, 2023 from $134.1 million in the prior year period.

The increase was primarily due to the increase in loan origination volume and related title closing services.

As a percentage of financial services revenues, G&A expense was 78.7% in the three months ended December 31, 2023 compared to 97.9% in the prior year period.

Fluctuations in financial services G&A expense as a percentage of revenues can occur because some components of revenue fluctuate differently than loan volumes, and some expenses are not directly related to mortgage loan volume or to changes in the amount of revenue earned.

Our financial services operations employed 2,845 and 3,069 people at June 30, 2023 and 2022, respectively.

Our financial services operations employed 2,978 and 2,897 people at December 31, 2023 and 2022, respectively.

Other income, net of other expense, included in our financial services operations consists primarily of the interest income of our mortgage subsidiary.

Primarily as a result of the reduction in revenue and operating margin of our mortgage operations, pre-tax income from our financial services operations decreased 31% to $197.9 million in the nine months ended June 30, 2023 from $288.2 million in the prior year period.

RESULTS OF OPERATIONS - RENTAL

Our 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, with a primary focus on constructing garden style multi-family rental communities typically accommodating 200 to 400 dwelling units in high growth suburban markets.

Single-family and multi-family rental property sales are recognized as revenues, and rental income is recognized as other income.

Results of operations for the rental segment for the three and nine months ended June 30, 2023 and 2022 were as follows:

Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

(In millions)

Single-family rental $ 589.6 $ 39.5 $ 1,041.6 $ 292.7

Multi-family rental and other 77.5 70.2 177.0 196.4

Total revenues 667.1 109.7 1,218.6 489.1

Cost of sales

Single-family rental 411.1 16.5 705.5 130.3

Multi-family rental and other 47.8 34.5 96.0 95.9

Total cost of sales 458.9 51.0 801.5 226.2

Selling, general and administrative expense 80.0 22.8 181.0 64.2

Other (income) expense (33.9) (6.7) (70.9) (16.4)

Income before income taxes $ 162.1 $ 42.6 $ 307.0 $ 215.1

At June 30, 2023, our rental property inventory of $3.3 billion included $1.9 billion of inventory related to our single-family rental operations and $1.4 billion of inventory related to our multi-family rental operations.

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

The following tables provide further information regarding our rental operations as of and for the three and nine months ended June 30, 2023 and 2022:

Rental Homes/Units Sold and Closed

Three Months Ended June 30,

Homes/Units Closed Value (In millions)

2023 2022 2023 2022

Single-family rental homes 1,754 84 $ 589.6 $ 39.5

Multi-family rental units 230 298 77.5 69.3

1,984 382 $ 667.1 $ 108.8

Nine Months Ended June 30,

Homes/Units Closed Value (In millions)

2023 2022 2023 2022

Single-family rental homes 3,169 678 $ 1,041.6 $ 292.7

Multi-family rental units 530 775 177.0 195.5

3,699 1,453 $ 1,218.6 $ 488.2

Rental Inventory

2023 September 30,

Single-family rental homes (1) 7,570 7,400

Single-family rental lots (2) 3,650 6,680

Multi-family rental units (3) 8,800 6,110

________________________

See footnotes on following page.

(1) Single-family rental homes include 6,270 and 3,530 completed homes at June 30, 2023 and September 30, 2022, respectively.

(2) Single-family rental lots include 1,440 and 1,770 finished lots at June 30, 2023 and September 30, 2022, respectively.

(3) Multi-family rental units at June 30, 2023 consist of 6,920 units under active construction and 1,880 units that were substantially complete and in the lease-up phase.

Multi-family rental units at September 30, 2022 consist of 5,810 units under active construction and 300 units that were substantially complete and in the lease-up phase.

Other income increased 63% to $24.9 million in the three months ended December 31, 2023 from $15.3 million in the prior year period, primarily due to an increase in interest rates on our loan origination volume.

RESULTS OF OPERATIONS - OTHER BUSINESSES

In addition to our homebuilding, Forestar, financial services and rental operations, we engage in other business activities through our subsidiaries.

The pre-tax income of all of our subsidiaries engaged in other business activities was $0.2 million and $22.1 million in the three and nine months ended June 30, 2023, respectively, compared to $16.0 million and $40.2 million in the prior year periods.

In addition to our homebuilding, rental, Forestar and financial services operations, we engage in other business activities through our subsidiaries.

We conduct insurance-related operations, own water rights and other water-related assets and own non-residential real estate including ranch land and improvements.

The pre-tax income of all of our subsidiaries engaged in other business activities was $9.9 million in the three months ended December 31, 2023 compared to $9.4 million in the prior year period.

RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes

Pre-tax income for the three and nine months ended June 30, 2023 was $1.8 billion and $4.3 billion, respectively, compared to $2.2 billion and $5.6 billion in the prior year periods.

The decrease was primarily due to a decrease in the pre-tax income of our homebuilding operations as a result of a decrease in home sales gross margin.

Our 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.

Our 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.

Our 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.

We have 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.

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

Pre-tax income for the three months ended December 31, 2023 was $1.2 billion compared to $1.3 billion in the prior year period.

The decrease was primarily due to a decrease in the pre-tax income of our rental operations, which had fewer home and unit closings compared to the prior year period.

Our income tax expense for the three months ended December 31, 2023 was $291.8 million compared to $298.9 million in the prior year period.

Our effective tax rate was 23.4% for the three months ended December 31, 2023 compared to 23.6% in the prior year period.

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

Our deferred tax assets, net of deferred tax liabilities, were $190.7 million at December 31, 2023 compared to $202.0 million at September 30, 2023.

We have a valuation allowance of $14.8 million at December 31, 2023 and September 30, 2023 related to deferred tax assets for state net operating loss (NOL) and tax credit carryforwards that are expected to expire before being realized.

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

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

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We are maintaining significant homebuilding cash balances and liquidity to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

At June 30, 2023, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $6.1 billion, of which $2.2 billion is payable within 12 months and includes $1.7 billion outstanding under our mortgage repurchase facilities and $400 million principal amount of 5.75% homebuilding senior notes due August 2023 that we redeemed early in July 2023.

At June 30, 2023, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 22.0% compared to 23.8% at September 30, 2022 and 24.9% at June 30, 2022.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 11.2% at June 30, 2023 compared to 15.4% at September 30, 2022 and 19.3% at June 30, 2022.

At June 30, 2023, our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 11.1% compared to 13.2% at September 30, 2022 and 17.0% at June 30, 2022.

Our net homebuilding debt to total capital (homebuilding notes payable net of cash divided by stockholders’ equity plus homebuilding notes payable net of cash) was 0.7% at June 30, 2023 compared to 4.4% at September 30, 2022 and 12.1% at June 30, 2022.

Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 25%, and we expect it to remain below 15% throughout fiscal 2023 and 2024.

We believe that the ratio of homebuilding debt to total capital is useful in understanding the leverage employed in our homebuilding operations and comparing our capital structure with other homebuilders.

We exclude the debt of Forestar, DRH Rental and our financial services business because they are separately capitalized and not guaranteed by our parent company or any of our homebuilding entities.

At June 30, 2023, we had outstanding letters of credit of $253.2 million and surety bonds of $3.0 billion, issued by third parties to secure performance under various contracts.

At December 31, 2023, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $5.3 billion.

$2.0 billion is payable within 12 months, including $1.3 billion which is outstanding under our mortgage repurchase facilities.

At December 31, 2023, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 18.6% compared to 18.3% at September 30, 2023 and 22.0% at December 31, 2022.

Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 7.8% at December 31, 2023 compared to 5.1% at September 30, 2023 and 13.3% at December 31, 2022.

Over the long term, we intend to maintain our ratio of debt to total capital below 25%, and we expect it to remain below 20% throughout fiscal 2024.

At December 31, 2023, we had outstanding letters of credit of $253.9 million and surety bonds of $3.2 billion, issued by third parties to secure performance under various contracts.

We expect that our performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms.

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

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.

At December 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.

As market conditions permit, we may issue new debt or equity securities through the capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity.

We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facility and ability to access the capital markets or obtain additional bank financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations for the next 12 months and for the foreseeable future thereafter.

We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facilities and ability to access the capital markets or obtain additional bank financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations for the next 12 months and for the foreseeable future thereafter.

Capital Resources - Homebuilding

Cash and Cash Equivalents — At June 30, 2023, cash and cash equivalents of our homebuilding segment totaled $2.6 billion.

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our homebuilding segment totaled $2.5 billion.

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

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

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.

At December 31, 2023, there were no borrowings outstanding and $229.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $1.96 billion.

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

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The credit agreement governing the facility imposes restrictions on the creation of secured debt and liens.

At June 30, 2023, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility.

Public Unsecured Debt — In February 2023, we repaid $300 million principal amount of our 4.75% senior notes at maturity.

At June 30, 2023, we had $2.5 billion principal amount of homebuilding senior notes outstanding that were scheduled to mature from August 2023 through October 2027.

In July 2023, we redeemed $400 million principal amount of our 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.

At December 31, 2023, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility.

Public Unsecured Debt — At December 31, 2023, we had $2.1 billion principal amount of homebuilding senior notes outstanding that mature from October 2024 through October 2027.

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

At June 30, 2023, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

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

At December 31, 2023, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

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

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

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

In April 2023, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock, replacing the prior stock repurchase authorization.

During the nine months ended June 30, 2023, we repurchased 7.7 million shares at a total cost including commissions and excise taxes of $764.2 million.

At June 30, 2023, the full amount of the debt repurchase authorization was remaining, and $657.1 million of the stock repurchase authorization was remaining.

Effective October 31, 2023, our Board of Directors authorized the repurchase of up to $1.5 billion of our common stock, replacing the previous authorization that was effective as of April 18, 2023.

During the three months ended December 31, 2023, we repurchased 3.3 million shares at a total cost, including commissions and excise taxes, of $398.3 million, of which $201.6 million was repurchased under the previous authorization.

At December 31, 2023, the full amount of the debt repurchase authorization was remaining, and $1.3 billion of the stock repurchase authorization was remaining.

The debt and stock repurchase authorizations have no expiration date.

Capital Resources - Rental

During the past few years, we have made significant investments in our rental operations.

The inventory in our rental segment totaled $3.0 billion at December 31, 2023 compared to $2.7 billion at September 30, 2023 and $2.9 billion at December 31, 2022.

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our rental segment totaled $117.7 million.

Bank Credit Facility — Our rental subsidiary, DRH Rental, has a $1.05 billion senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.0 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 October 10, 2027.

Borrowings and repayments under the facility totaled $720 million and $170 million, respectively, during the three months ended December 31, 2023.

At December 31, 2023, there were $950 million of borrowings outstanding at a 7.2% annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $100 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.

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 December 31, 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 our homebuilding, Forestar or financial services operations.

Capital Resources - Forestar

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As market conditions permit, Forestar may issue new debt or equity securities through the capital markets or obtain additional bank financing to provide capital for future growth and additional liquidity.

At June 30, 2023, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 35.3% compared to 37.1% at September 30, 2022 and 38.1% at June 30, 2022.

Forestar’s ratio of net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 19.1% compared to 26.9% at September 30, 2022 and 32.8% at June 30, 2022.

Cash and Cash Equivalents — At June 30, 2023, Forestar had cash and cash equivalents of $401.0 million.

At December 31, 2023, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 33.4% compared to 33.7% at September 30, 2023 and 36.7% at December 31, 2022.

Forestar’s ratio of net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 14.9% compared to 5.5% at September 30, 2023 and 28.7% at December 31, 2022.

Cash and Cash Equivalents — At December 31, 2023, Forestar had cash and cash equivalents of $458.9 million.

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

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

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.

At December 31, 2023, there were no borrowings outstanding and $24.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $385.7 million.

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

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Unsecured Debt — As of June 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.

Unsecured Debt — As of December 31, 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.

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

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.

At December 31, 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 our homebuilding, financial services or rental operations.

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

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

All of the $30 million authorization was remaining at June 30, 2023, and the authorization has no expiration date.

Issuance of Common Stock — During the nine months ended June 30, 2023, there were no shares of common stock 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.

All of the $30 million authorization was remaining at December 31, 2023, and the authorization has no expiration date.

Issuance of Common Stock — During the three months ended December 31, 2023, there were no shares of common stock issued under Forestar’s ATM program.

At December 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.

Capital Resources - Financial Services

Cash and Cash Equivalents — At June 30, 2023, cash and cash equivalents of our financial services segment totaled $253.0 million.

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our financial services segment totaled $226.9 million.

Mortgage Repurchase Facilities — Our 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.

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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.

At December 31, 2023, DHI Mortgage had an obligation of $1.2 billion under the committed mortgage repurchase facility at a 7.0% annual interest rate.

At December 31, 2023, the uncommitted mortgage repurchase facility had a borrowing capacity of $300 million, of which DHI Mortgage had an obligation of $119 million at a 6.6% annual interest rate.

At December 31, 2023, $1.82 billion of mortgage loans held for sale with a collateral value of $1.79 billion were pledged under the committed mortgage repurchase facility, and $127.3 million of mortgage loans held for sale with a collateral value of $121.5 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.

At December 31, 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 our homebuilding, Forestar or rental operations.

In the past, DHI Mortgage has been able to renew or extend its committed mortgage repurchase facility at a sufficient capacity and on satisfactory terms prior to its maturity and obtain temporary additional commitments through amendments to the credit agreement during periods of higher than normal volumes of mortgages held for sale.

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

In the past, DHI Mortgage has been able to renew or extend its committed mortgage repurchase facility at a sufficient capacity and on satisfactory terms prior to its maturity and obtain temporary additional commitments through amendments to the facility during periods of higher than normal volumes of mortgages held for sale.

The liquidity of our financial services business depends upon its continued ability to renew and extend the committed mortgage repurchase facility or to obtain other additional financing in sufficient capacities.

Capital Resources - Rental

During the first nine months of fiscal 2023, we continued to increase the investment in our rental operations.

The inventory in our rental segment totaled $3.3 billion at June 30, 2023 compared to $2.6 billion at September 30, 2022 and $2.0 billion at June 30, 2022.

Cash and Cash Equivalents — At June 30, 2023, cash and cash equivalents of our rental segment totaled $133.4 million.

Bank Credit Facility — Our 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 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 $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 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 June 30, 2023, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

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

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

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

Operating Cash Flow Activities

In the nine months ended June 30, 2023, net cash provided by operating activities was $2.3 billion compared to $562.8 million of cash used in operating activities in the prior year period.

Cash provided by operating activities in the current year period primarily consisted of $2.1 billion, $136.1 million and $13.9 million of cash provided by our homebuilding, Forestar and financial services segments, respectively, partially offset by $78.1 million of cash used in our rental segment.

Cash provided by a decrease in construction in progress and finished home inventory was $576.2 million in the current year period compared to cash used to increase construction in progress and finished home inventory of $3.1 billion in the prior year period, reflecting a decrease in our homes in inventory in the current period.

Cash used to increase residential land and lots was $915.0 million in the current year period compared to $1.0 billion in the prior year period.

In the nine months ended June 30, 2023, cash used to increase our rental inventories was $777.3 million compared to $1.1 billion in the prior year period, which reflects our ongoing investments in our rental platform.

In the three months ended December 31, 2023, net cash used in operating activities was $153.4 million compared to $829.1 million of cash provided by operating activities in the prior year period.

Cash used in operating activities in the current year period primarily consisted of $516.2 million and $156.7 million of cash used in our rental and Forestar segments, respectively, partially offset by $464.7 million and $31.2 million of cash provided by our financial services and homebuilding segments, respectively.

Cash used to increase construction in progress and finished home inventory was $466.4 million in the current year period, reflecting an increase in our completed homes in inventory in the current period.

Cash used to increase residential land and lots was $937.8 million in the current year period compared to $637.5 million in the prior year period.

Investing Cash Flow Activities

In the nine months ended June 30, 2023, net cash used in investing activities was $308.5 million compared to $372.9 million in the prior year period.

In the current year period, uses of cash included the acquisitions of the homebuilding operations of Riggins Custom Homes for $107 million and Truland Homes for approximately $100 million and purchases of property and equipment totaling $108.3 million.

In the prior year period, uses of cash included the acquisition of Vidler Water Resources, Inc.

for $271.5 million, net of the cash acquired, and purchases of property and equipment totaling $108.0 million.

In the three months ended December 31, 2023, net cash used in investing activities was $39.3 million compared to $142.9 million in the prior year period.

In the current year period, uses of cash included purchases of property and equipment totaling $47.6 million.

In the prior year period, uses of cash included the acquisition of the homebuilding operations of Riggins Custom Homes for $107.0 million, of which $97.1 million was paid in the period, and purchases of property and equipment totaling $47.5 million.

Financing Cash Flow Activities

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Long-term financing needs for our operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets.

During the nine months ended June 30, 2023, the net cash used in financing activities consisted primarily of repayment of $300 million principal amount of our 4.75% homebuilding senior notes, cash used to repurchase shares of our common stock of $759.6 million and payment of cash dividends totaling $256.9 million.

These uses of cash were partially offset by net borrowings on DRH Rental’s revolving credit facility of $200 million and net advances on our mortgage repurchase facility of $67.3 million.

During the nine months ended June 30, 2022, the net cash used in financing activities consisted primarily of cash used to repurchase shares of our common stock of $859.7 million, payment of cash dividends totaling $238.4 million and net payments on our mortgage repurchase facility of $88.9 million.

These uses of cash were partially offset by net borrowings on our homebuilding revolving credit facility of $400 million and draws on DRH Rental’s revolving credit facility of $175 million.

During each of the first three quarters of fiscal 2023, our 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, our 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.

During the three months ended December 31, 2023, net cash used in financing activities was $362.8 million, consisting primarily of net payments on our mortgage repurchase facilities of $389.9 million, cash used to repurchase shares of our common stock of $376.9 million and payment of cash dividends totaling $99.9 million.

These uses of cash were partially offset by net borrowings on our rental revolving credit facility of $550 million.

During the three months ended December 31, 2022, net cash used in financing activities was $646.6 million, consisting primarily of net payments on our mortgage repurchase facility of $404.4 million, cash used to repurchase shares of our common stock of $118.1 million and payment of cash dividends totaling $86.1 million.

During the three months ended December 31, 2023, our Board of Directors approved a quarterly cash dividend of $0.30 per common share, which was paid on November 28, 2023 to stockholders of record on November 21, 2023.

In January 2024, our Board of Directors approved a quarterly cash dividend of $0.30 per common share, payable on February 13, 2024 to stockholders of record on February 6, 2024.

Cash dividends of $0.25 per common share were approved and paid in each quarter of fiscal 2023.

The declaration of future cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, cash flows, capital requirements, financial condition and general business conditions.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of June 30, 2023, D.R.

As of December 31, 2023, D.R.

had $2.1 billion principal amount of homebuilding senior notes outstanding due through October 2027 and no amounts outstanding on its homebuilding revolving credit facility.

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

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

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

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

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and Guarantor Subsidiaries

Summarized Balance Sheet Data June 30,

Summarized Balance Sheet Data December 31,

2023 September 30,

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20,876.1 20,296.0

Summarized Statement of Operations Data Nine Months Ended

June 30, 2023 Year Ended

Summarized Statement of Operations Data Three Months Ended

December 31, 2023 Year Ended

September 30, 2023

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As disclosed in our critical accounting policies in our Form 10-K for the fiscal year ended September 30, 2023, our reserves for construction defect claims include the estimated costs of both known claims and anticipated future claims.

At June 30, 2023 and September 30, 2022, we had reserves for approximately 625 and 560 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the nine months ended June 30, 2023, we established reserves for approximately 240 new construction defect claims and resolved 175 construction defect claims for a total cost of $25.5 million.

At June 30, 2022 and September 30, 2021, we had reserves for approximately 540 and 380 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the nine months ended June 30, 2022, we established reserves for approximately 285 new construction defect claims and resolved 125 construction defect claims for a total cost of $19.4 million.

At December 31, 2023 and September 30, 2023, we had reserves for approximately 565 and 600 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the three months ended December 31, 2023, we were notified of approximately 85 new construction defect claims and resolved 120 construction defect claims for a total cost of $34.9 million.

At December 31, 2022 and September 30, 2022, we had reserves for approximately 570 and 560 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements.

During the three months ended December 31, 2022, we were notified of approximately 60 new construction defect claims and resolved 50 construction defect claims for a total cost of $4.6 million.

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again in the future, we generally close more homes and generate greater revenues and pre-tax income in the third and fourth quarters of our fiscal year.

The seasonal nature of our business can also cause significant variations in the working capital requirements for our homebuilding, lot development, financial services and rental operations.

The seasonal nature of our business can also cause significant variations in the working capital requirements for our homebuilding, rental, lot development and financial services operations.

As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of our fiscal year.

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These risks, uncertainties and other factors include, but are not limited to:

• the cyclical nature of the homebuilding, lot development and rental housing industries and changes in economic, real estate or other conditions;

• constriction of the credit and public capital markets, which could limit our ability to access capital and increase our costs of capital;

• the cyclical nature of the homebuilding, rental and lot development industries and changes in economic, real estate or other conditions;

• adverse developments affecting the capital markets and financial institutions, which could limit our ability to access capital and increase our cost of capital and impact our liquidity and capital resources;

• reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates;

• the risks associated with our land, lot and rental inventory;

• our ability to effect our growth strategies, acquisitions or investments successfully;

• our ability to effect our growth strategies, acquisitions, investments or other strategic initiatives successfully;

• the impact of an inflationary, deflationary or higher interest rate environment;

• supply shortages and other risks of acquiring land, building materials and skilled labor;

• the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our businesses;

• supply shortages and other risks of acquiring land, building materials and skilled labor and obtaining regulatory approvals;

• the effects of public health issues such as a major epidemic or pandemic on the economy and our businesses;

• the effects of weather conditions and natural disasters on our business and financial results;

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• increases in the costs of owning a home;

• the effects of information technology failures, data security breaches, and the failure to satisfy privacy and data protection laws and regulations;

• the effects of governmental regulations and environmental matters on our homebuilding and land development operations;

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• actions by activist stockholders.

• information technology failures, data security breaches and our ability to satisfy privacy and data protection laws and regulations.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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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 2. Management’s Discussion and Analysis