What changed in this filing

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Item 1. Financial Statements

2024-04-23 compared with 2024-01-24 · 192 added, 99 removed, 546 unchanged (35% of the section changed)

14 unchanged sentences

Mortgage loans held for sale 2,672.4 2,519.9

Deferred income taxes, net of valuation allowance of $ 14.8 million

at December 31, 2023 and September 30, 2023

Deferred income taxes, net of valuation allowance of $ 14.7 million and $ 14.8 million

at March 31, 2024 and September 30, 2023, respectively

Property and equipment, net 479.9 445.4

9 unchanged sentences

Common stock, $ .01 par value, 1,000,000,000 shares authorized, 402,624,949 shares issued

and 332,190,334 shares outstanding at December 31, 2023 and 401,202,253 shares issued

and 330,196,301 shares outstanding at March 31, 2024 and 401,202,253 shares issued

and 334,848,565 shares outstanding at September 30, 2023

1 unchanged sentence

Retained earnings 25,510.2 23,589.8

Treasury stock, 69,678,838 shares and 66,353,688 shares at December 31, 2023

Treasury stock, 72,428,648 shares and 66,353,688 shares at March 31, 2024

and September 30, 2023, respectively, at cost

8 unchanged sentences

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(In millions, except per share data)

40 unchanged sentences

$ 4.0 $ 3,440.2 $ 24,437.3 $ ( 4,728.1 ) $ 450.1 $ 23,603.5

Net income — — 1,172.1 — 11.6 1,183.7

Exercise of stock options ( 151,568 shares)

— 3.6 — — — 3.6

Stock issued under employee benefit plans ( 604,209 shares)

— 6.9 — — — 6.9

Cash paid for shares withheld for taxes — ( 44.1 ) — — — ( 44.1 )

Stock-based compensation expense — 25.0 — — — 25.0

Cash dividends declared ($ 0.30 per share)

— — ( 99.2 ) — — ( 99.2 )

Repurchases of common stock ( 2,749,810 shares)

— — — ( 402.2 ) — ( 402.2 )

Change of ownership interest in Forestar — — — — 19.2 19.2

Balances at March 31, 2024 ( 330,196,301 shares)

$ 4.0 $ 3,431.6 $ 25,510.2 $ ( 5,130.3 ) $ 480.9 $ 24,296.4

See accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Continued)

Stock Additional

20 unchanged sentences

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

Net income — — 942.2 — 7.4 949.6

Exercise of stock options ( 234,796 shares)

— 5.6 — — — 5.6

Stock issued under employee benefit plans ( 713,217 shares)

— 4.7 — — — 4.7

Cash paid for shares withheld for taxes — ( 30.1 ) — — — ( 30.1 )

Stock-based compensation expense — 28.4 — — — 28.4

Cash dividends declared ($ 0.25 per share)

— — ( 85.6 ) — — ( 85.6 )

Repurchases of common stock ( 3,156,298 ) shares)

— — — ( 303.2 ) — ( 303.2 )

Change of ownership in Forestar — ( 2.6 ) — — 2.6 —

Balances at March 31, 2023 ( 341,070,276 shares)

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended December 31,

Six Months Ended March 31,

(In millions)

12 unchanged sentences

Increase in rental properties ( 386.9 ) ( 689.2 )

(Increase) decrease in other assets ( 130.0 ) 330.2

Decrease in mortgage loans held for sale 475.8 603.3

Increase (decrease) in accounts payable, accrued expenses and other liabilities 127.5 ( 472.3 )

Decrease in other assets 27.6 339.8

(Increase) decrease in mortgage loans held for sale ( 152.5 ) 262.0

Decrease in accounts payable, accrued expenses and other liabilities ( 164.0 ) ( 403.4 )

Net cash (used in) provided by operating activities ( 470.1 ) 1,473.6

8 unchanged sentences

Repayment of notes payable ( 400.0 ) ( 650.0 )

Payments on mortgage repurchase facilities, net ( 389.9 ) ( 404.4 )

Borrowings (payments) on mortgage repurchase facilities, net 214.4 ( 63.4 )

Proceeds from stock associated with certain employee benefit plans 12.2 12.9

3 unchanged sentences

( 794.5 ) ( 419.8 )

Net proceeds from issuance of Forestar common stock 19.7 —

Net other financing activities ( 26.7 ) ( 18.5 )

6 unchanged sentences

Stock issued under employee incentive plans $ 151.3 $ 107.4

Repurchases of common stock not settled $ 18.3 $ —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

December 31, 2023

March 31, 2024

NOTE A – BASIS OF PRESENTATION

2 unchanged sentences

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

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

As of March 31, 2024, the Company owned a 62 % controlling interest in Forestar Group Inc.

(Forestar) and therefore is required to consolidate 100% of Forestar within its consolidated financial statements, and the 38 % interest the Company does not own is accounted for as noncontrolling interests.

9 unchanged sentences

Historically, the homebuilding industry has experienced seasonal fluctuations;

therefore, the operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024 or subsequent periods.

therefore, the operating results for the three and six months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024 or subsequent periods.

Pending Accounting Standards

9 unchanged sentences

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

December 31, 2023

March 31, 2024

NOTE B – SEGMENT INFORMATION

22 unchanged sentences

Financial Services

The Company’s financial services segment provides mortgage financing and title agency services to homebuyers in many of the Company’s homebuilding markets.

The segment generates the substantial majority of its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

The Company’s financial services segment provides mortgage financing, title agency services and title insurance to homebuyers in many of the Company’s homebuilding markets.

The segment generates the substantial majority of its revenues from originating and selling mortgages, collecting premiums and fees for escrow closing services and collecting premiums for title insurance.

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

4 unchanged sentences

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

December 31, 2023

March 31, 2024

The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2023.

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

December 31, 2023

March 31, 2024

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

22 unchanged sentences

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

December 31, 2023

March 31, 2024

September 30, 2023

23 unchanged sentences

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

December 31, 2023

Three Months Ended December 31, 2023

March 31, 2024

Three Months Ended March 31, 2024

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

14 unchanged sentences

Income before income taxes $ 1,357.6 $ 33.3 $ 58.9 $ 78.0 $ 0.7 $ 1,528.5

______________

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

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

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

AND SUBSIDIARIES

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

March 31, 2024

Six Months Ended March 31, 2024

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

(In millions)

Home sales $ 15,743.1 $ — $ — $ — $ — $ 15,743.1

Land/lot sales and other 27.2 — 639.7 — ( 561.6 ) 105.3

Rental property sales — 566.5 — — — 566.5

Financial services — — — 418.2 — 418.2

15,770.3 566.5 639.7 418.2 ( 561.6 ) 16,833.1

Cost of sales

Home sales (2) 12,113.6 — — — ( 122.5 ) 11,991.1

Land/lot sales and other 17.3 — 483.4 — ( 456.7 ) 44.0

Rental property sales — 444.1 — — ( 4.8 ) 439.3

Inventory and land option charges 18.6 0.6 0.4 — — 19.6

12,149.5 444.7 483.8 — ( 584.0 ) 12,494.0

Selling, general and administrative expense 1,217.5 108.8 57.2 322.7 9.4 1,715.6

Other (income) expense ( 50.4 ) ( 51.6 ) ( 11.4 ) ( 48.5 ) 9.4 ( 152.5 )

Income before income taxes $ 2,453.7 $ 64.6 $ 110.1 $ 144.0 $ 3.6 $ 2,776.0

Summary Cash Flow Information

7 unchanged sentences

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

December 31, 2023

Three Months Ended December 31, 2022

March 31, 2024

Three Months Ended March 31, 2023

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

14 unchanged sentences

Income before income taxes $ 1,067.9 $ 34.6 $ 35.9 $ 85.6 $ 21.3 $ 1,245.3

______________

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

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

AND SUBSIDIARIES

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

March 31, 2024

Six Months Ended March 31, 2023

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

(In millions)

Home sales $ 14,158.9 $ — $ — $ — $ — $ 14,158.9

Land/lot sales and other 54.7 — 518.2 — ( 406.2 ) 166.7

Rental property sales — 551.6 — — — 551.6

Financial services — — — 353.4 — 353.4

14,213.6 551.6 518.2 353.4 ( 406.2 ) 15,230.6

Cost of sales

Home sales (2) 10,949.7 — — — ( 110.9 ) 10,838.8

Land/lot sales and other 18.3 — 392.1 — ( 352.1 ) 58.3

Rental property sales — 341.4 — — ( 2.4 ) 339.0

Inventory and land option charges 38.4 1.4 22.7 — ( 11.1 ) 51.4

11,006.4 342.8 414.8 — ( 476.5 ) 11,287.5

Selling, general and administrative expense 1,072.6 101.0 44.9 281.0 11.0 1,510.5

Other (income) expense ( 27.7 ) ( 37.1 ) ( 5.3 ) ( 31.4 ) 21.6 ( 79.9 )

Income before income taxes $ 2,162.3 $ 144.9 $ 63.8 $ 103.8 $ 37.7 $ 2,512.5

Summary Cash Flow Information

7 unchanged sentences

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

December 31, 2023

March 31, 2024

Homebuilding Inventories by Reporting Segment (1)

13 unchanged sentences

Homebuilding Results by Reporting Segment Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(In millions)

16 unchanged sentences

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

December 31, 2023

March 31, 2024

NOTE C – INVENTORIES

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

As of December 31, 2023, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended December 31, 2023.

There were $ 4.8 million of impairment charges recorded in the prior year quarter.

During the three months ended December 31, 2023, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 6.1 million compared to $ 22.7 million in the same period of fiscal 2023.

As of March 31, 2024, the Company performed detailed impairment evaluations of communities and land inventories and determined that communities with a combined carrying value of $ 30.7 million were impaired.

As a result, impairment charges of $ 5.6 million were recorded during the three and six months ended March 31, 2024 to reduce the carrying value of the related inventories to fair value.

There were $ 9.2 million and $ 14.0 million of impairment charges recorded in the three and six months ended March 31, 2023, respectively.

During the three and six months ended March 31, 2024, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $ 8.0 million and $ 14.0 million, respectively, compared to $ 14.6 million and $ 37.4 million in the prior year periods.

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

1 unchanged sentence

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

December 31, 2023

March 31, 2024

NOTE D – NOTES PAYABLE

22 unchanged sentences

_____________

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 7.5 million and $ 8.4 million at December 31, 2023 and September 30, 2023, respectively.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 4.6 million and $ 5.0 million at December 31, 2023 and September 30, 2023, respectively.

(3) The fair value of notes payable at December 31, 2023 totaled $ 5.1 billion, of which $ 2.6 billion were measured using Level 2 inputs and $ 2.5 billion were measured using Level 3 inputs.

(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $ 6.7 million and $ 8.4 million at March 31, 2024 and September 30, 2023, respectively.

(2) Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $ 4.2 million and $ 5.0 million at March 31, 2024 and September 30, 2023, respectively.

(3) The fair value of notes payable at March 31, 2024 totaled $ 5.8 billion, of which $ 2.6 billion were measured using Level 2 inputs and $ 3.2 billion were measured using Level 3 inputs.

The fair value of notes payable at September 30, 2023 totaled $ 4.8 billion, of which $ 2.5 billion were measured using Level 2 inputs and $ 2.3 billion were measured using Level 3 inputs.

1 unchanged sentence

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

December 31, 2023

March 31, 2024

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

2 unchanged sentences

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

At 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.

At March 31, 2024, there were no borrowings outstanding and $ 213.7 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 1.98 billion.

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

2 unchanged sentences

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

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

At March 31, 2024, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility and public debt obligations.

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

3 unchanged sentences

The authorization has no expiration date.

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

All of the $ 500 million authorization was remaining at March 31, 2024.

The Company’s 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.

2 unchanged sentences

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.

Borrowings and repayments under the facility totaled $ 985 million and $ 400 million, respectively, during the six months ended March 31, 2024.

At March 31, 2024, there were $ 985 million of borrowings outstanding at a 7.4 % annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $ 65 million.

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

2 unchanged sentences

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

At December 31, 2023, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

At March 31, 2024, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

AND SUBSIDIARIES

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

December 31, 2023

March 31, 2024

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.

6 unchanged sentences

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

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.

At March 31, 2024, there were no borrowings outstanding and $ 28.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $ 382.0 million.

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

2 unchanged sentences

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.

At March 31, 2024, 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.

3 unchanged sentences

The authorization has no expiration date.

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

All of the $ 30 million authorization was remaining at March 31, 2024.

Financial Services

1 unchanged sentence

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

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

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

At 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.

In February 2024, the committed mortgage repurchase facility was amended to reduce its capacity to $ 1.6 billion and extend its maturity date to February 13, 2025.

The capacity of the facility can be increased to $ 2.0 billion subject to the availability of additional commitments.

At March 31, 2024, DHI Mortgage had an obligation of $ 1.4 billion under the committed mortgage repurchase facility at a 7.0 % annual interest rate.

At March 31, 2024, the uncommitted mortgage repurchase facility had a borrowing capacity of $ 500 million, of which DHI Mortgage had an obligation of $ 493.7 million at a 6.5 % annual interest rate.

At March 31, 2024, $ 2.17 billion of mortgage loans held for sale with a collateral value of $ 2.12 billion were pledged under the committed mortgage repurchase facility, and $ 540.4 million of mortgage loans held for sale with a collateral value of $ 511.0 million were pledged under the uncommitted mortgage repurchase facility.

AND SUBSIDIARIES

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

December 31, 2023

March 31, 2024

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 December 31, 2023, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facilities.

At March 31, 2024, 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.

4 unchanged sentences

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

During the first three months of fiscal 2024 and fiscal 2023, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three months ended December 31, 2023 and 2022:

During the first six months of fiscal 2024 and fiscal 2023, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three and six months ended March 31, 2024 and 2023:

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(In millions)

4 unchanged sentences

__________________

(1) Interest incurred in the three months ended December 31, 2023 and 2022 includes (a) interest on the Company's mortgage repurchase facilities of $ 14.9 million and $ 8.1 million, respectively;

(b) Forestar interest of $ 8.1 million and $ 8.2 million, respectively;

and (c) interest on DRH Rental’s revolving credit facility of $ 8.2 million and $ 9.0 million, respectively.

(1) Interest incurred includes (a) interest on the Company's mortgage repurchase facilities of $ 13.4 million and $ 28.3 million in the three and six months ended March 31, 2024, respectively, and $ 9.7 million and $ 17.8 million in the prior year periods;

(b) Forestar interest of $ 8.2 million and $ 16.3 million in the three and six months ended March 31, 2024, respectively, and $ 8.2 million and $ 16.4 million in the prior year periods;

and (c) interest on the rental revolving credit facility of $ 17.6 million and $ 25.8 million in the three and six months ended March 31, 2024, respectively, and $ 13.7 million and $ 22.7 million in the prior year periods.

AND SUBSIDIARIES

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

December 31, 2023

March 31, 2024

NOTE F – MORTGAGE LOANS

2 unchanged sentences

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

At December 31, 2023, mortgage loans held for sale of $ 2.0 billion had an aggregate outstanding principal balance of $ 2.0 billion.

At March 31, 2024, mortgage loans held for sale of $ 2.7 billion had an aggregate outstanding principal balance of $ 2.7 billion.

At September 30, 2023, mortgage loans held for sale of $ 2.5 billion had an aggregate outstanding principal balance of $ 2.6 billion.

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

During the three months ended December 31, 2023 and 2022, mortgage loans originated totaled $ 5.1 billion and $ 4.6 billion, respectively, and mortgage loans sold totaled $ 5.7 billion and $ 5.2 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 128.7 million during the three months ended December 31, 2023 compared to $ 79.2 million in the prior year period.

During the six months ended March 31, 2024 and 2023, mortgage loans originated totaled $ 11.3 billion and $ 9.6 billion, respectively, and mortgage loans sold totaled $ 11.1 billion and $ 9.9 billion, respectively.

The Company had gains on sales of loans and servicing rights of $ 152.7 million and $ 281.5 million during the three and six months ended March 31, 2024, respectively, compared to $ 154.5 million and $ 233.8 million in the prior year periods.

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

During the three months ended December 31, 2023, approximately 71 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 28 % were sold to one other major financial entity.

During the six months ended March 31, 2024, approximately 71 % of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 28 % were sold to one other major financial entity.

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

At December 31, 2023 and September 30, 2023, the Company had mortgage-backed securities (MBS) totaling $ 765.6 million and $ 1.1 billion, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned.

The Company recorded a liability of $ 16.5 million at December 31, 2023 and an asset of $ 15.7 million at September 30, 2023 for the fair value of such MBS position, which is measured using Level 2 inputs.

At March 31, 2024 and September 30, 2023, the Company had mortgage-backed securities (MBS) totaling $ 620.5 million and $ 1.1 billion, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned.

The Company recorded a liability of $ 0.1 million at March 31, 2024 and an asset of $ 15.7 million at September 30, 2023 for the fair value of such MBS position, which is measured using Level 2 inputs.

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

At December 31, 2023 and September 30, 2023, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 3 inputs, totaled $ 2.3 billion and $ 2.7 billion, respectively.

At March 31, 2024 and September 30, 2023, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 3 inputs, totaled $ 3.0 billion and $ 2.7 billion, respectively.

NOTE G – INCOME TAXES

The Company’s income tax expense for the three months ended December 31, 2023 and 2022 was $ 291.8 million and $ 298.9 million, respectively.

The 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.

The Company’s 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.

The Company has 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.

The Company’s income tax expense for the three and six months ended March 31, 2024 was $ 344.8 million and $ 636.6 million, respectively, compared to $ 295.7 million and $ 594.6 million in the prior year periods.

The effective tax rate was 22.6 % and 22.9 % for the three and six months ended March 31, 2024, respectively, compared to 23.7 % in both prior year periods.

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

The Company’s deferred tax assets, net of deferred tax liabilities, were $ 181.2 million at March 31, 2024 compared to $ 202.0 million at September 30, 2023.

The Company had a valuation allowance of $ 14.7 million and $ 14.8 million at March 31, 2024 and September 30, 2023, respectively, related to deferred tax assets for state net operating loss (NOL) and tax credit carryforwards that are expected to expire before being realized.

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

2 unchanged sentences

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

December 31, 2023

March 31, 2024

NOTE H – EARNINGS PER SHARE

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(In millions)

13 unchanged sentences

The authorization has no expiration date.

During the three months ended December 31, 2023, the Company repurchased 3.3 million shares of its common stock 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, there was $ 1.3 billion remaining on the repurchase authorization.

During the three months ended December 31, 2023, the Board of Directors approved a quarterly cash dividend of $ 0.30 per common share totaling $ 99.9 million, which was paid on November 28, 2023 to stockholders of record on November 21, 2023.

In January 2024, the 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.

During the six months ended March 31, 2024, the Company repurchased 6.1 million shares of its common stock at a total cost, including commissions and excise taxes, of $ 800.5 million, of which $ 201.6 million was repurchased under the previous authorization.

At March 31, 2024, there was $ 901.1 million remaining on the repurchase authorization.

During each of the first two quarters of fiscal 2024, the Board of Directors approved a quarterly cash dividend of $ 0.30 per common share, the most recent of which was paid on February 13, 2024 to stockholders of record on February 6, 2024.

In April 2024, the Board of Directors approved a quarterly cash dividend of $ 0.30 per common share, payable on May 9, 2024 to stockholders of record on May 2, 2024.

Cash dividends declared and paid in the three and six months ended March 31, 2024 totaled $ 99.2 million and $ 199.1 million, respectively.

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

During the three months ended December 31, 2023, there were no shares 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.

During the three months ended March 31, 2024, Forestar issued 546,174 shares of common stock under its ATM program for proceeds of $ 19.7 million, net of commissions and other issuance costs totaling $ 0.4 million.

At March 31, 2024, $ 728.1 million remained available for issuance under Forestar’s shelf registration statement, of which $ 278.1 million was reserved for sales under its ATM program.

AND SUBSIDIARIES

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

December 31, 2023

March 31, 2024

NOTE J – EMPLOYEE BENEFIT PLANS

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In October 2023, the Company granted 277,779 performance-based RSUs to its executive officers.

This grant was subsequently modified in December 2023 to change the performance criteria to total shareholder return, return on assets and operating margin.

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

These awards vest at the end of a three -year performance period ending September 30, 2026.

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

The performance criteria for the October 2023 grants are total shareholder return, return on assets and operating margin.

The grant date fair value of these equity awards was $ 146.72 per unit.

Compensation expense related to this grant was $ 2.5 million in the three months ended December 31, 2023 based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the three months ended December 31, 2023, the Company granted approximately 150,000 time-based RSUs.

Compensation expense related to this grant was $ 6.8 million in the six months ended March 31, 2024 based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the six months ended March 31, 2024, the Company granted approximately 660,000 time-based RSUs to approximately 1,460 recipients, including executive officers, other key employees and non-management directors.

The weighted average grant date fair value of these equity awards was $ 147.58 per unit, and they vest annually in equal installments over periods of three to five years.

Compensation expense related to these grants was $ 13.9 million in the three months ended December 31, 2023, which included $ 13.8 million of expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 37.3 million during the three months ended December 31, 2023 compared to $ 21.1 million during the three months ended December 31, 2022.

Compensation expense related to these grants was $ 3.5 million and $ 17.4 million in the three and six months ended March 31, 2024, respectively.

Compensation expense in the three and six months ended March 31, 2024 included $ 2.6 million and $ 16.4 million, respectively, of expense recognized for employees that were retirement eligible on the date of grant.

Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $ 22.1 million and $ 59.4 million during the three and six months ended March 31, 2024, respectively, compared to $ 26.0 million and $ 47.1 million during the three and six months ended March 31, 2023.

AND SUBSIDIARIES

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

December 31, 2023

March 31, 2024

NOTE K – COMMITMENTS AND CONTINGENCIES

2 unchanged sentences

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

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

Changes in the Company’s warranty liability during the three and six months ended March 31, 2024 and 2023 were as follows:

Three Months Ended

March 31, Six Months Ended

2024 2023 2024 2023

(In millions)

8 unchanged sentences

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

The estimated liabilities for these contingencies were $ 814.5 million and $ 858.9 million at December 31, 2023 and September 30, 2023, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 97 % of these reserves related to construction defect matters at both December 31, 2023 and September 30, 2023.

Expenses related to the Company’s legal contingencies were $ 26.4 million and $ 18.8 million in the three months ended December 31, 2023 and 2022, respectively.

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

Three Months Ended

The estimated liabilities for these contingencies were $ 849.3 million and $ 858.9 million at March 31, 2024 and September 30, 2023, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets.

Approximately 97 % of these reserves related to construction defect matters at both March 31, 2024 and September 30, 2023.

Expenses related to the Company’s legal contingencies were $ 63.6 million and $ 53.3 million in the six months ended March 31, 2024 and 2023, respectively.

Changes in the Company’s legal claims reserves during the six months ended March 31, 2024 and 2023 were as follows:

Six Months Ended

(In millions)

Reserves for legal claims, beginning of period $ 858.9 $ 729.1

(Decrease) increase in reserves ( 4.7 ) 26.9

Increase in reserves 39.8 58.7

Payments ( 49.4 ) ( 19.5 )

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

December 31, 2023

March 31, 2024

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

1 unchanged sentence

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

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 131.5 million, $ 165.8 million and $ 143.6 million at December 31, 2023, September 30, 2023 and December 31, 2022, respectively, and are included in other assets in the consolidated balance sheets.

The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $ 134.8 million, $ 165.8 million and $ 139.0 million at March 31, 2024, September 30, 2023 and March 31, 2023, respectively, and are included in other assets in the consolidated balance sheets.

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

6 unchanged sentences

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

At December 31, 2023, the Company had total deposits of $ 1.9 billion, consisting of cash deposits of $ 1.7 billion and promissory notes and surety bonds of $ 131.9 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 22.5 billion.

At March 31, 2024, the Company had total deposits of $ 1.9 billion, consisting of cash deposits of $ 1.8 billion and promissory notes and surety bonds of $ 141.8 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $ 23.1 billion.

Of these amounts, $ 158.2 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $ 1.5 billion.

A limited number of the homebuilding land and lot purchase contracts at December 31, 2023, representing $ 301.3 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

A limited number of the homebuilding land and lot purchase contracts at March 31, 2024, representing $ 268.3 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations.

Of the $ 268.3 million remaining purchase price subject to specific performance provisions, $ 243.9 million related to contracts between the homebuilding segment and Forestar.

During the three months ended December 31, 2023 and 2022, Forestar reimbursed the homebuilding segment $ 13.3 million and $ 0.1 million, respectively, for previously paid earnest money and $ 4.6 million and $ 4.7 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2024, Forestar reimbursed the homebuilding segment $ 5.4 million and $ 18.7 million, respectively, for previously paid earnest money and $ 6.1 million and $ 10.7 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.

During the three and six months ended March 31, 2023, Forestar reimbursed the homebuilding segment $ 5.7 million and $ 10.4 million, respectively, for such pre-acquisition and due diligence costs.

Other Commitments

At December 31, 2023, the Company had outstanding surety bonds of $ 3.2 billion and letters of credit of $ 253.9 million to secure performance under various contracts.

At March 31, 2024, the Company had outstanding surety bonds of $ 3.2 billion and letters of credit of $ 241.7 million to secure performance under various contracts.

Of the total letters of credit, $ 213.7 million were issued under the homebuilding revolving credit facility and $ 28.0 million were issued under Forestar’s revolving credit facility.

1 unchanged sentence

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

December 31, 2023

March 31, 2024

NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

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

The Company’s other assets at March 31, 2024 and September 30, 2023 were as follows:

2024 September 30,

13 unchanged sentences

$ 2,982.5 $ 2,993.0

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

The Company’s accrued expenses and other liabilities at March 31, 2024 and September 30, 2023 were as follows:

2024 September 30,

15 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements