UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30,~~December 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From To

Commission File Number: 1-14122

D.R. Horton, Inc.

(Exact name of registrant as specified in its charter)


			Delaware			75-2386963
			(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1341 Horton Circle

Arlington, Texas 76011

(Address of principal executive offices) (Zip code)

(817) 390-8200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, par value $.01 per share

DHI

New York Stock Exchange

5.750% Senior Notes due 2023

DHI 23A

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of ~~July 22, 2020,~~January 20, 2021, there were ~~363,702,563~~363,701,712 shares of the registrant’s common stock, par value $.01 per share, outstanding.

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX


			Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020			3
Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019			4
Consolidated Statements of Total Equity for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019			5
Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019			76
Notes to Consolidated Financial Statements			87
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3327
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			6254
ITEM 4. Controls and Procedures			6355
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			6456
ITEM ~~1A. Risk Factors~~2. Unregistered Sales of Equity Securities and Use of Proceeds			6456
ITEM 6. Exhibits			6557
SIGNATURES			6658

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(In millions) (Unaudited)							(In millions) (Unaudited)
ASSETS	ASSETS					ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	2,353.5	$	1,494.3	Cash and cash equivalents	$	2,454.9	$	3,018.5
Restricted cash	Restricted cash	19.2		19.7		Restricted cash	20.0		21.6
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	2,372.7		1,514.0		Total cash, cash equivalents and restricted cash	2,474.9		3,040.1
Inventories:	Inventories:					Inventories:
Construction in progress and finished homes	Construction in progress and finished homes	5,847.3		5,245.0		Construction in progress and finished homes	6,598.8		5,984.1
Residential land and lots — developed and under development	Residential land and lots — developed and under development	6,198.8		5,939.4		Residential land and lots — developed and under development	6,856.1		6,171.8
Land held for development	Land held for development	64.5		77.8		Land held for development	97.8		53.2
Land held for sale	Land held for sale	28.1		19.8		Land held for sale	23.8		28.3
Total inventory	Total inventory	12,138.7		11,282.0		Total inventory	13,576.5		12,237.4
Mortgage loans held for sale	Mortgage loans held for sale	1,502.6		1,072.0		Mortgage loans held for sale	1,438.9		1,529.0
Deferred income taxes, net of valuation allowance of $13.6 million and $18.7 million at June 30, 2020 and September 30, 2019, respectively		158.6		163.1
Deferred income taxes, net of valuation allowance of $7.5 million at December 31, 2020 and September 30, 2020						Deferred income taxes, net of valuation allowance of $7.5 million at December 31, 2020 and September 30, 2020	142.0		144.9
Property and equipment, net	Property and equipment, net	631.9		499.2		Property and equipment, net	748.4		683.7
Other assets	Other assets	1,005.9		912.8		Other assets	1,236.2		1,113.7
Goodwill	Goodwill	163.5		163.5		Goodwill	163.5		163.5
Total assets	Total assets	$	17,973.9	$	15,606.6	Total assets	$	19,780.4	$	18,912.3
LIABILITIES	LIABILITIES					LIABILITIES
Accounts payable	Accounts payable	$	761.2	$	634.0	Accounts payable	$	845.6	$	900.5
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,588.3		1,278.1		Accrued expenses and other liabilities	1,938.9		1,607.0
Notes payable	Notes payable	4,297.3		3,399.4		Notes payable	4,225.6		4,283.3
Total liabilities	Total liabilities	6,646.8		5,311.5		Total liabilities	7,010.1		6,790.8
Commitments and contingencies (Note L)	Commitments and contingencies (Note L)					Commitments and contingencies (Note L)	0		0
EQUITY	EQUITY					EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, 0 shares issued	Preferred stock, $.10 par value, 30,000,000 shares authorized, 0 shares issued	—		—		Preferred stock, $.10 par value, 30,000,000 shares authorized, 0 shares issued	0		0
Common stock, $.01 par value, 1,000,000,000 shares authorized, 394,374,575 shares issued and 363,633,208 shares outstanding at June 30, 2020 and 392,172,821 shares issued and 368,431,454 shares outstanding at September 30, 2019		3.9		3.9
Common stock, $.01 par value, 1,000,000,000 shares authorized, 395,389,246 shares issued and 363,647,879 shares outstanding at December 31, 2020 and 394,741,349 shares issued and 363,999,982 shares outstanding at September 30, 2020						Common stock, $.01 par value, 1,000,000,000 shares authorized, 395,389,246 shares issued and 363,647,879 shares outstanding at December 31, 2020 and 394,741,349 shares issued and 363,999,982 shares outstanding at September 30, 2020	4.0		3.9
Additional paid-in capital	Additional paid-in capital	3,214.2		3,179.1		Additional paid-in capital	3,236.9		3,240.9
Retained earnings	Retained earnings	8,992.5		7,640.1		Retained earnings	10,476.7		9,757.8
Treasury stock, 30,741,367 shares and 23,741,367 shares at June 30, 2020 and September 30, 2019, respectively, at cost		(1,162.6)		(802.2)
Treasury stock, 31,741,367 shares and 30,741,367 shares at December 31, 2020 and September 30, 2020, respectively, at cost						Treasury stock, 31,741,367 shares and 30,741,367 shares at December 31, 2020 and September 30, 2020, respectively, at cost	(1,232.4)		(1,162.6)
Stockholders’ equity	Stockholders’ equity	11,048.0		10,020.9		Stockholders’ equity	12,485.2		11,840.0
Noncontrolling interests	Noncontrolling interests	279.1		274.2		Noncontrolling interests	285.1		281.5
Total equity	Total equity	11,327.1		10,295.1		Total equity	12,770.3		12,121.5
Total liabilities and equity	Total liabilities and equity	$	17,973.9	$	15,606.6	Total liabilities and equity	$	19,780.4	$	18,912.3

See accompanying notes to consolidated financial statements.

Table of Contents

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(In millions, except per share data) (Unaudited)														(In millions, except per share data) (Unaudited)
Revenues	Revenues	$	5,390.0	$	4,906.3	$	13,910.8	$	12,554.0	Revenues	$	5,933.4	$	4,020.7
Cost of sales	Cost of sales	4,084.7		3,831.6		10,619.7		9,839.4		Cost of sales	4,332.5		3,084.2
Selling, general and administrative expense	Selling, general and administrative expense	527.5		480.0		1,450.1		1,327.0		Selling, general and administrative expense	585.9		455.8
Gain on sale of assets	Gain on sale of assets	—		(22.6)		(59.5)		(53.9)		Gain on sale of assets	(14.0)		(31.1)
Other (income) expense	Other (income) expense	(4.6)		(9.4)		(26.4)		(23.7)		Other (income) expense	(5.3)		(11.5)
Income before income taxes	Income before income taxes	782.4		626.7		1,926.9		1,465.2		Income before income taxes	1,034.3		523.3
Income tax expense	Income tax expense	149.5		153.1		377.6		350.5		Income tax expense	239.1		90.8
Net income	Net income	632.9		473.6		1,549.3		1,114.7		Net income	795.2		432.5
Net income (loss) attributable to noncontrolling interests		2.2		(1.2)		4.6		1.5
Net income attributable to noncontrolling interests										Net income attributable to noncontrolling interests	3.4		1.2
Net income attributable to D.R. Horton, Inc.	Net income attributable to D.R. Horton, Inc.	$	630.7	$	474.8	$	1,544.7	$	1,113.2	Net income attributable to D.R. Horton, Inc.	$	791.8	$	431.3

Basic net income per common share attributable to D.R. Horton, Inc.	Basic net income per common share attributable to D.R. Horton, Inc.	$	1.73	$	1.28	$	4.22	$	2.98	Basic net income per common share attributable to D.R. Horton, Inc.	$	2.17	$	1.17
Weighted average number of common shares	Weighted average number of common shares	363.8		372.3		366.0		373.5		Weighted average number of common shares	364.4		368.3

Diluted net income per common share attributable to D.R. Horton, Inc.	Diluted net income per common share attributable to D.R. Horton, Inc.	$	1.72	$	1.26	$	4.17	$	2.94	Diluted net income per common share attributable to D.R. Horton, Inc.	$	2.14	$	1.16
Adjusted weighted average number of common shares	Adjusted weighted average number of common shares	367.7		376.9		370.4		378.2		Adjusted weighted average number of common shares	370.0		373.4

See accompanying notes to consolidated financial statements.

Table of Contents

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF TOTAL EQUITY

Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock Non-controlling
Interests Total
Equity
(In millions, except common stock share data)
(Unaudited)
Balances at September 30, 2019 (368,431,454 shares) $ 3.9 $ 3,179.1 $ 7,640.1 $ (802.2) $ 274.2 $ 10,295.1
Net income — — 431.3 — 1.2 432.5
Exercise of stock options (258,800 shares) — 4.1 — — — 4.1
Stock issued under employee benefit plans (582,936 shares) — — — — — —
Cash paid for shares withheld for taxes — (17.3) — — — (17.3)
Stock-based compensation expense — 16.6 — — — 16.6
Cash dividends declared ($0.175 per share) — — (64.6) — — (64.6)
Repurchases of common stock (3,000,000 shares) — — — (163.1) — (163.1)
Distributions to noncontrolling interests — — — — (0.4) (0.4)
Change of ownership interest in Forestar — (0.5) — — 0.5 —
Balances at December 31, 2019 (366,273,190 shares) $ 3.9 $ 3,182.0 $ 8,006.8 $ (965.3) $ 275.5 $ 10,502.9
Net income — — 482.7 — 1.3 484.0
Exercise of stock options (310,032 shares) — 6.2 — — — 6.2
Stock issued under employee benefit plans (954,588 shares) — 2.6 — — — 2.6
Cash paid for shares withheld for taxes — (20.8) — — — (20.8)
Stock-based compensation expense — 21.3 — — — 21.3
Cash dividends declared ($0.175 per share) — — (64.1) — — (64.1)
Repurchases of common stock (4,000,000 shares) — — — (197.3) — (197.3)
Balances at March 31, 2020 (363,537,810 shares) $ 3.9 $ 3,191.3 $ 8,425.4 $ (1,162.6) $ 276.8 $ 10,734.8
Net income — — 630.7 — 2.2 632.9
Exercise of stock options (93,491 shares) — 2.1 — — — 2.1
Stock issued under employee benefit plans (1,907 shares) — — — — — —
Cash paid for shares withheld for taxes — (0.1) — — — (0.1)
Stock-based compensation expense — 21.3 — — — 21.3
Cash dividends declared ($0.175 per share) — — (63.6) — — (63.6)
Distributions to noncontrolling interests — — — — (0.3) (0.3)
Change of ownership interest in Forestar — (0.4) — — 0.4 —
Balances at June 30, 2020 (363,633,208 shares) $ 3.9 $ 3,214.2 $ 8,992.5 $ (1,162.6) $ 279.1 $ 11,327.1


	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Non-controlling Interests		Total Equity
	(In millions, except common stock share data) (Unaudited)
Balances at September 30, 2020 (363,999,982 shares)	$	3.9	$	3,240.9	$	9,757.8	$	(1,162.6)	$	281.5	$	12,121.5
Net income	0		0		791.8		0		3.4		795.2
Exercise of stock options (42,950 shares)	0		0.9		—		—		—		0.9
Stock issued under employee benefit plans (604,947 shares)	0.1		0		—		—		—		0.1
Cash paid for shares withheld for taxes	0		(26.3)		0		0		0		(26.3)
Stock-based compensation expense	—		21.7		—		—		—		21.7
Cash dividends declared ($0.20 per share)	—		—		(72.9)		—		—		(72.9)
Repurchases of common stock (1,000,000 shares)	—		—		—		(69.8)		—		(69.8)
Distributions to noncontrolling interests	—		—		—		—		(0.1)		(0.1)
Change of ownership interest in Forestar	—		(0.3)		—		—		0.3		0
Balances at December 31, 2020 (363,647,879 shares)	$	4.0	$	3,236.9	$	10,476.7	$	(1,232.4)	$	285.1	$	12,770.3


	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Non-controlling Interests		Total Equity
	(In millions, except common stock share data) (Unaudited)
Balances at September 30, 2019 (368,431,454 shares)	$	3.9	$	3,179.1	$	7,640.1	$	(802.2)	$	274.2	$	10,295.1
Net income	0		0		431.3		0		1.2		432.5
Exercise of stock options (258,800 shares)	0		4.1		—		—		—		4.1
Stock issued under employee benefit plans (582,936 shares)	—		0		—		—		—		—
Cash paid for shares withheld for taxes	0		(17.3)		0		0		0		(17.3)
Stock-based compensation expense	—		16.6		—		—		—		16.6
Cash dividends declared ($0.175 per share)	—		—		(64.6)		—		—		(64.6)
Repurchases of common stock (3,000,000 shares)	—		—		—		(163.1)		—		(163.1)
Distributions to noncontrolling interests	—		—		—		—		(0.4)		(0.4)
Change of ownership interest in Forestar	—		(0.5)		—		—		0.5		0
Balances at December 31, 2019 (366,273,190 shares)	$	3.9	$	3,182.0	$	8,006.8	$	(965.3)	$	275.5	$	10,502.9

See accompanying notes to consolidated financial statements.

~~Table of Contents~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF TOTAL EQUITY (Continued)~~

Common
Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock Non-controlling
Interests Total
Equity
(In millions, except common stock share data)
(Unaudited)
Balances at September 30, 2018 (376,261,635 shares) $ 3.9 $ 3,085.0 $ 6,217.9 $ (322.4) $ 174.5 $ 9,158.9
Cumulative effect of adoption of ASC 606 — — 27.1 — — 27.1
Net income (loss) — — 287.2 — (0.5) 286.7
Exercise of stock options (806,817 shares) — 8.6 — — — 8.6
Stock issued under employee benefit plans (273,608 shares) — — — — — —
Cash paid for shares withheld for taxes — (4.1) — — — (4.1)
Stock-based compensation expense — 18.1 — — — 18.1
Cash dividends declared ($0.15 per share) — — (56.0) — — (56.0)
Repurchases of common stock (4,100,000 shares) — — — (140.6) — (140.6)
Distributions to noncontrolling interests — — — — (0.5) (0.5)
Balances at December 31, 2018 (373,242,060 shares) $ 3.9 $ 3,107.6 $ 6,476.2 $ (463.0) $ 173.5 $ 9,298.2
Net income — — 351.3 — 3.1 354.4
Exercise of stock options (831,489 shares) — 11.4 — — — 11.4
Stock issued under employee benefit plans (1,059,415 shares) — 2.0 — — 0.3 2.3
Cash paid for shares withheld for taxes — (15.4) — — — (15.4)
Stock-based compensation expense — 17.8 — — — 17.8
Cash dividends declared ($0.15 per share) — — (55.9) — — (55.9)
Repurchases of common stock (2,000,000 shares) — — — (75.6) — (75.6)
Distributions to noncontrolling interests — — — — (3.2) (3.2)
Balances at March 31, 2019 (373,132,964 shares) $ 3.9 $ 3,123.4 $ 6,771.6 $ (538.6) $ 173.7 $ 9,534.0
Net income (loss) — — 474.8 — (1.2) 473.6
Exercise of stock options (271,186 shares) — 4.6 — — — 4.6
Stock issued under employee benefit plans (2,524 shares) — — — — — —
Stock-based compensation expense — 18.0 — — — 18.0
Cash dividends declared ($0.15 per share) — — (56.0) — — (56.0)
Repurchases of common stock (3,658,462 shares) — — — (159.3) — (159.3)
Distributions to noncontrolling interests — — — — (0.2) (0.2)
Balances at June 30, 2019 (369,748,212 shares) $ 3.9 $ 3,146.0 $ 7,190.4 $ (697.9) $ 172.3 $ 9,814.7

~~See accompanying notes to consolidated financial statements.~~

Table of Contents

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019			2020		2019
		(In millions) (Unaudited)							(In millions) (Unaudited)
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net income	Net income	$	1,549.3	$	1,114.7	Net income	$	795.2	$	432.5
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:						Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	57.4		52.4		Depreciation and amortization	20.4		19.0
Amortization of discounts and fees	Amortization of discounts and fees	7.8		8.1		Amortization of discounts and fees	2.5		3.1
Stock-based compensation expense	Stock-based compensation expense	59.2		53.9		Stock-based compensation expense	21.7		16.6
Equity in earnings of unconsolidated entities	Equity in earnings of unconsolidated entities	(0.6)		(0.5)		Equity in earnings of unconsolidated entities	(0.9)		(0.5)
Distributions of earnings of unconsolidated entities		—		0.5

Deferred income taxes	Deferred income taxes	1.0		11.7		Deferred income taxes	2.9		7.2
Inventory and land option charges	Inventory and land option charges	17.8		41.0		Inventory and land option charges	8.3		3.8
Gain on sale of assets	Gain on sale of assets	(59.5)		(53.9)		Gain on sale of assets	(14.0)		(31.1)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Increase in construction in progress and finished homes	Increase in construction in progress and finished homes	(602.3)		(393.0)		Increase in construction in progress and finished homes	(591.2)		(334.8)
Increase in residential land and lots – developed, under development, held for development and held for sale	Increase in residential land and lots – developed, under development, held for development and held for sale	(361.9)		(606.2)		Increase in residential land and lots – developed, under development, held for development and held for sale	(716.8)		(373.1)
Increase in other assets		(62.2)		(138.1)
Net increase in mortgage loans held for sale		(430.7)		(158.5)
(Increase) decrease in other assets						(Increase) decrease in other assets	(124.9)		2.0
Net decrease in mortgage loans held for sale						Net decrease in mortgage loans held for sale	90.1		46.9
Increase in accounts payable, accrued expenses and other liabilities	Increase in accounts payable, accrued expenses and other liabilities	413.6		148.6		Increase in accounts payable, accrued expenses and other liabilities	254.6		94.6
Net cash provided by operating activities		588.9		80.7
Net cash used in operating activities						Net cash used in operating activities	(252.1)		(113.8)
INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES
Expenditures for property and equipment	Expenditures for property and equipment	(66.8)		(105.3)		Expenditures for property and equipment	(16.3)		(21.6)
Proceeds from sale of assets	Proceeds from sale of assets	129.8		143.8		Proceeds from sale of assets	31.8		62.8
Expenditures related to rental properties	Expenditures related to rental properties	(153.6)		(56.3)		Expenditures related to rental properties	(86.2)		(59.6)
Return of investment in unconsolidated entities	Return of investment in unconsolidated entities	2.4		4.4		Return of investment in unconsolidated entities	2.1		1.9
Net principal increase of other mortgage loans and real estate owned		(3.7)		(2.0)
Net principal decrease (increase) of other mortgage loans and real estate owned						Net principal decrease (increase) of other mortgage loans and real estate owned	0.2		(0.6)
Payments related to business acquisitions	Payments related to business acquisitions	(8.5)		(310.9)		Payments related to business acquisitions	(23.0)		(0.7)
Net cash used in investing activities	Net cash used in investing activities	(100.4)		(326.3)		Net cash used in investing activities	(91.4)		(17.8)
FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES
Proceeds from notes payable	Proceeds from notes payable	2,346.3		2,528.2		Proceeds from notes payable	494.1		495.7
Repayment of notes payable	Repayment of notes payable	(1,679.5)		(2,536.1)		Repayment of notes payable	(400.1)		0
Advances on mortgage repurchase facility, net		284.0		158.8
Payments on mortgage repurchase facility, net						Payments on mortgage repurchase facility, net	(163.5)		(38.6)
Proceeds from stock associated with certain employee benefit plans	Proceeds from stock associated with certain employee benefit plans	15.0		26.8		Proceeds from stock associated with certain employee benefit plans	0.9		4.1
Cash paid for shares withheld for taxes	Cash paid for shares withheld for taxes	(38.2)		(19.5)		Cash paid for shares withheld for taxes	(26.3)		(17.3)
Cash dividends paid	Cash dividends paid	(192.3)		(167.9)		Cash dividends paid	(72.9)		(64.6)
Repurchases of common stock	Repurchases of common stock	(360.4)		(361.5)		Repurchases of common stock	(53.8)		(163.1)
Distributions to noncontrolling interests, net	Distributions to noncontrolling interests, net	(0.7)		(3.9)		Distributions to noncontrolling interests, net	(0.1)		(0.4)
Other financing activities	Other financing activities	(4.0)		—		Other financing activities	0		(2.3)
Net cash provided by (used in) financing activities		370.2		(375.1)
Net increase (decrease) in cash, cash equivalents and restricted cash		858.7		(620.7)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(221.7)		213.5
Net (decrease) increase in cash, cash equivalents and restricted cash						Net (decrease) increase in cash, cash equivalents and restricted cash	(565.2)		81.9
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	1,514.0		1,506.0		Cash, cash equivalents and restricted cash at beginning of period	3,040.1		1,514.0
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	2,372.7	$	885.3	Cash, cash equivalents and restricted cash at end of period	$	2,474.9	$	1,595.9
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:	SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:					SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES:
Notes payable issued for inventory	Notes payable issued for inventory	$	2.8	$	83.6	Notes payable issued for inventory	$	12.5	$	0
Stock issued under employee incentive plans	Stock issued under employee incentive plans	$	84.4	$	49.1	Stock issued under employee incentive plans	$	44.7	$	31.8
Accrued expenditures for property and equipment	Accrued expenditures for property and equipment	$	10.6	$	18.9	Accrued expenditures for property and equipment	$	21.8	$	7.7
Accrual for holdback payment related to acquisition		$	1.9	$	15.0
Accrual for holdback payments related to acquisitions						Accrual for holdback payments related to acquisitions	$	2.6	$	9.5
Repurchase of common stock not settled	Repurchase of common stock not settled	$	—	$	14.0	Repurchase of common stock not settled	$	16.0	$	0

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~June 30,~~December 31, 2020

NOTE A – BASIS OF PRESENTATION

The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company, unless the context otherwise requires. Noncontrolling interests represent the proportionate equity interests in consolidated entities that are not 100% owned by the Company. The Company owns a 65% controlling interest in Forestar Group Inc. (Forestar) and therefore is required to consolidate 100% of Forestar within its consolidated financial statements, and the 35% interest the Company does not own is accounted for as noncontrolling interests. All intercompany accounts, transactions and balances have been eliminated in consolidation.

The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items. These financial statements, including the consolidated balance sheet as of September 30, ~~2019,~~2020, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, ~~2019.~~

~~Reclassifications~~

Certain prior period amounts have been reclassified to conform to the current year presentation. At the beginning of fiscal 2020, the Company reclassified its single-family rental properties from other assets to property and equipment in its homebuilding segment. Reclassification of the prior period amount resulted in a $37.0 million decrease in other assets with a corresponding increase in property and equipment at September 30, 2019. This reclassification had no effect on the Company’s consolidated financial position or results of operations.2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Seasonality

Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2020~~2021 or subsequent periods.

~~Adoption of New Accounting Standards~~Business Acquisition

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, “Leases,” which requires that lease assets and liabilities be recognized on the balance sheet and that key information about leasing arrangements be disclosed. The guidance was effective forOctober 2020, the Company ~~beginning October 1, 2019~~acquired the homebuilding operations of Braselton Homes for approximately $23.0 million in cash. Braselton Homes operates in Corpus Christi, Texas. The assets acquired included approximately 90 homes in inventory, 95 lots and ~~did not have a material impact on its consolidated financial position, results~~control of operations or cash flows. As a result of the adoption of this standard on October 1, 2019, the Company recorded right of use assets of $39.0 million and lease liabilities of $40.3 million. Lease right of use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities in the consolidated balance sheet.

~~Table of Contents~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. The rule is effective January 4, 2021 but earlier compliance is permitted.approximately 840 additional lots through purchase contracts. The Company ~~adopted these amendments on March 31, 2020. Accordingly, summarized financial information has been presented only for the issuers and guarantors~~also acquired a sales order backlog of the Company's registered securities for the most recent fiscal year and the year-to-date interim period, and the location of the required disclosures has been moved from Notes to Consolidated Financial Statements to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.approximately 125 homes.

Pending Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information in determining credit loss estimates. The guidance is effective for the Company beginning October 1, 2020 and is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other,” which simplifies the measurement of goodwill impairment by removing the second step of the goodwill impairment test and requires the determination of the fair value of individual assets and liabilities of a reporting unit. Under the new guidance, goodwill impairment is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value with the loss recognized limited to the total amount of goodwill allocated to the reporting unit. The guidance is effective for the Company beginning October 1, 2020 and is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In December 2019, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU 2019-12 related to simplifying the accounting for income taxes. The guidance is effective for the Company beginning October 1, 2021, although early adoption is permitted. The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued. The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance. The Company will adopt ~~this standard~~these standards when LIBOR is discontinued and does not expect itthem to have a material impact on its consolidated financial statements or related disclosures.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

NOTE B – SEGMENT INFORMATION

The Company is a national homebuilder that is primarily engaged in the acquisition and development of land and the construction and sale of residential homes, with operations in 8890 markets across 29 states. The Company’s operating segments are its 5255 homebuilding divisions, its majority-owned Forestar residential lot development operations, its financial services operations and its other business activities. The Company’s reporting segments are its homebuilding reporting segments, its Forestar lot development segment and its financial services segment. The homebuilding operating segments are aggregated into the following 6 reporting segments: East, Midwest, Southeast, South Central, Southwest and West. These reporting segments have homebuilding operations located in the following states:


			East:						Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina and Virginia
			Midwest:						Colorado, Illinois, Indiana, Iowa, Minnesota and Ohio
			Southeast:						Alabama, Florida, Georgia, Mississippi and Tennessee
			South Central:						Louisiana, Oklahoma and Texas
			Southwest:						Arizona and New Mexico
			West:						California, Hawaii, Nevada, Oregon, Utah and Washington

The Company’s homebuilding divisions design, build and sell single-family detached homes on lots they develop and on fully developed lots purchased ready for home construction. To a lesser extent, the homebuilding divisions also build and sell attached homes, such as townhomes, duplexes and triplexes. Most of the revenue generated by the Company’s homebuilding operations is from the sale of completed homes and to a lesser extent from the sale of land and lots.

During fiscal 2020, the Company began constructing and leasing homes as income-producing single-family rental communities. After a rental community is constructed and achieves a stabilized level of leased occupancy, the Company generally expects to market the community for a bulk sale of homes. These operations are reported in the Company’s homebuilding segment. During the three months ended December 31, 2020, the Company completed its first sale of a single-family rental community representing 124 homes for $31.8 million, resulting in a gain on sale of $14.0 million. At December 31, 2020, the Company’s homebuilding fixed assets included $106.6 million of assets related to its single-family rental platform, representing 13 communities totaling 890 single-family rental homes and finished lots, which included 440 completed homes. At September 30, 2020, the Company’s homebuilding fixed assets included $87.2 million of assets related to its single-family rental platform, representing 10 communities totaling 740 single-family rental homes and finished lots, which included 440 completed homes.

The Forestar segment is a residential lot development company with operations in 51 markets across 2221 states. Forestar has made significant investments in land acquisition and development to expand its business across the United States. The homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies. Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance.

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

In addition to its homebuilding, Forestar and financial services operations, the Company has subsidiaries that engage in other business activities. These subsidiaries conduct insurance-related operations, construct and own income-producing multi-family rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets. The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and presented as other. One of these subsidiaries, DHI Communities, constructs multi-family rental properties and had 4 projects under active construction and 1 project that was substantially complete at June 30, 2020. DHI Communities sold two multi-family rental properties during the current fiscal year, one in November 2019 and another in February 2020, for a total of $128.5 million and recorded gains on sale totaling $59.4 million. At June 30, 2020 and September 30, 2019, the consolidated balance sheets included $224.8 million and $204.0 million, respectively, of assets owned by DHI Communities.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

In addition to its homebuilding, Forestar and financial services operations, the Company engages in other business activities through its subsidiaries. The Company conducts insurance-related operations, constructs and owns income-producing multi-family rental properties, owns non-residential real estate including ranch land and improvements and owns and operates oil and gas related assets. The results of these operations are immaterial for separate reporting and therefore are grouped together and presented as other. The Company’s multi-family rental operations develop, construct, lease and own multi-family rental properties, which are typically marketed for sale after achieving a stabilized level of leased occupancy. At December 31, 2020, the Company had 4 multi-family rental projects under active construction and 4 projects that were substantially complete. These eight projects represent 2,325 multi-family units, including 1,015 units under active construction and 1,310 completed units. At December 31, 2020 and September 30, 2020, the consolidated balance sheets included $294.3 million and $246.2 million, respectively, of multi-family rental assets.

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, ~~2019.~~2020. Financial information relating to the Company’s reporting segments is as follows:


		June 30, 2020																											December 31, 2020
		Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated			Homebuilding		Forestar (1)		Financial Services		Other		Eliminations and Other Adjustments (2)		Consolidated
		(In millions)																											(In millions)
Assets	Assets															Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,896.8	$	355.6	$	75.1	$	26.0	$	—	$	—	$	2,353.5	Cash and cash equivalents	$	2,129.3	$	237.4	$	65.3	$	22.9	$	0	$	2,454.9
Restricted cash	Restricted cash	9.0		—		10.0		0.2		—		—		19.2		Restricted cash	10.8		0		9.0		0.2		0		20.0
Inventories:	Inventories:															Inventories:
Construction in progress and finished homes	Construction in progress and finished homes	5,886.0		—		—		—		(38.7)		—		5,847.3		Construction in progress and finished homes	6,665.1		0		0		0		(66.3)		6,598.8
Residential land and lots — developed and under development	Residential land and lots — developed and under development	4,953.6		1,271.7		—		—		(28.0)		1.5		6,198.8		Residential land and lots — developed and under development	5,407.3		1,484.9		0		0		(36.1)		6,856.1
Land held for development	Land held for development	49.1		15.4		—		—		—		—		64.5		Land held for development	42.3		55.5		0		0		0		97.8
Land held for sale	Land held for sale	28.1		—		—		—		—		—		28.1		Land held for sale	23.8		0		0		0		0		23.8
		10,916.8		1,287.1		—		—		(66.7)		1.5		12,138.7			12,138.5		1,540.4		0		0		(102.4)		13,576.5
Mortgage loans held for sale	Mortgage loans held for sale	—		—		1,502.6		—		—		—		1,502.6		Mortgage loans held for sale	0		0		1,438.9		0		0		1,438.9
Deferred income taxes, net	Deferred income taxes, net	154.6		—		—		—		10.0		(6.0)		158.6		Deferred income taxes, net	142.6		0		0		0		(0.6)		142.0
Property and equipment, net	Property and equipment, net	344.0		1.2		3.7		284.8		(1.8)		—		631.9		Property and equipment, net	388.3		1.9		3.7		359.1		(4.6)		748.4
Other assets	Other assets	880.7		41.5		128.9		50.3		(100.6)		5.1		1,005.9		Other assets	1,121.7		29.4		121.5		56.5		(92.9)		1,236.2
Goodwill	Goodwill	134.3		—		—		—		—		29.2		163.5		Goodwill	134.3		0		0		0		29.2		163.5
		$	14,336.2	$	1,685.4	$	1,720.3	$	361.3	$	(159.1)	$	29.8	$	17,973.9		$	16,065.5	$	1,809.1	$	1,638.4	$	438.7	$	(171.3)	$	19,780.4
Liabilities	Liabilities															Liabilities
Accounts payable	Accounts payable	$	720.7	$	26.0	$	0.1	$	14.4	$	—	$	—	$	761.2	Accounts payable	$	786.4	$	42.2	$	0	$	17.0	$	0	$	845.6
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,423.1		171.9		103.7		8.7		(100.9)		(18.2)		1,588.3		Accrued expenses and other liabilities	1,741.6		218.8		101.0		10.9		(133.4)		1,938.9
Notes payable	Notes payable	2,490.3		640.6		1,172.9		—		(6.5)		—		4,297.3		Notes payable	2,606.2		654.1		969.1		0		(3.8)		4,225.6
		$	4,634.1	$	838.5	$	1,276.7	$	23.1	$	(107.4)	$	(18.2)	$	6,646.8		$	5,134.2	$	915.1	$	1,070.1	$	27.9	$	(137.2)	$	7,010.1

______________

(1)Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. ~~All purchase accounting adjustments are included in the Other Adjustments column.~~

(2)Amounts ~~represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts~~primarily represent the elimination of intercompany ~~transactions.~~

~~(4)Amounts represent~~transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

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

~~June 30,~~December 31, 2020


		September 30, 2019																											September 30, 2020
		Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated			Homebuilding		Forestar (1)		Financial Services		Other		Eliminations and Other Adjustments (2)		Consolidated
		(In millions)																											(In millions)
Assets	Assets															Assets
Cash and cash equivalents	Cash and cash equivalents	$	1,043.0	$	382.8	$	43.4	$	25.1	$	—	$	—	$	1,494.3	Cash and cash equivalents	$	2,551.1	$	394.3	$	55.6	$	17.5	$	0	$	3,018.5
Restricted cash	Restricted cash	8.0		—		11.6		0.1		—		—		19.7		Restricted cash	9.5		0		11.9		0.2		0		21.6
Inventories:	Inventories:															Inventories:
Construction in progress and finished homes	Construction in progress and finished homes	5,249.0		—		—		—		(4.0)		—		5,245.0		Construction in progress and finished homes	6,037.5		0		0		0		(53.4)		5,984.1
Residential land and lots — developed and under development	Residential land and lots — developed and under development	4,956.1		1,011.8		—		—		(31.4)		2.9		5,939.4		Residential land and lots — developed and under development	4,901.4		1,304.3		0		0		(33.9)		6,171.8
Land held for development	Land held for development	60.7		17.1		—		—		—		—		77.8		Land held for development	47.8		5.4		0		0		0		53.2
Land held for sale	Land held for sale	19.8		—		—		—		—		—		19.8		Land held for sale	28.3		0		0		0		0		28.3
		10,285.6		1,028.9		—		—		(35.4)		2.9		11,282.0			11,015.0		1,309.7		0		0		(87.3)		12,237.4
Mortgage loans held for sale	Mortgage loans held for sale	—		—		1,072.0		—		—		—		1,072.0		Mortgage loans held for sale	0		0		1,529.0		0		0		1,529.0
Deferred income taxes, net	Deferred income taxes, net	146.4		17.4		—		—		5.1		(5.8)		163.1		Deferred income taxes, net	142.3		0		0		0		2.6		144.9
Property and equipment, net	Property and equipment, net	272.4		2.4		3.2		221.2		—		—		499.2		Property and equipment, net	372.8		1.1		3.9		308.9		(3.0)		683.7
Other assets	Other assets	826.2		24.2		68.3		71.5		(88.5)		11.1		912.8		Other assets	996.4		34.8		125.8		52.8		(96.1)		1,113.7
Goodwill	Goodwill	134.3		—		—		—		—		29.2		163.5		Goodwill	134.3		0		0		0		29.2		163.5
		$	12,715.9	$	1,455.7	$	1,198.5	$	317.9	$	(118.8)	$	37.4	$	15,606.6		$	15,221.4	$	1,739.9	$	1,726.2	$	379.4	$	(154.6)	$	18,912.3
Liabilities	Liabilities															Liabilities
Accounts payable	Accounts payable	$	598.6	$	16.8	$	7.0	$	11.6	$	—	$	—	$	634.0	Accounts payable	$	859.3	$	29.2	$	0	$	12.0	$	0	$	900.5
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,152.5		169.5		53.0		9.3		(93.6)		(12.6)		1,278.1		Accrued expenses and other liabilities	1,438.3		197.8		86.8		12.2		(128.1)		1,607.0
Notes payable	Notes payable	2,047.6		460.5		888.9		—		—		2.4		3,399.4		Notes payable	2,514.4		641.1		1,132.6		0		(4.8)		4,283.3
		$	3,798.7	$	646.8	$	948.9	$	20.9	$	(93.6)	$	(10.2)	$	5,311.5		$	4,812.0	$	868.1	$	1,219.4	$	24.2	$	(132.9)	$	6,790.8

______________

(2)Amounts ~~represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts~~primarily represent the elimination of intercompany ~~transactions.~~

~~(4)Amounts represent~~transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020


		Three Months Ended June 30, 2020																											Three Months Ended December 31, 2020
		Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated			Homebuilding		Forestar (1)		Financial Services		Other		Eliminations and Other Adjustments (2)		Consolidated
		(In millions)																											(In millions)
Revenues	Revenues															Revenues
Home sales	Home sales	$	5,207.6	$	—	$	—	$	—	$	—	$	—	$	5,207.6	Home sales	$	5,698.7	$	0	$	0	$	0	$	0	$	5,698.7
Land/lot sales and other	Land/lot sales and other	14.5		177.9		—		8.9		(175.5)		—		25.8		Land/lot sales and other	19.9		307.1		0		14.7		(294.2)		47.5
Financial services	Financial services	—		—		156.6		—		—		—		156.6		Financial services	0		0		187.2		0		0		187.2
		5,222.1		177.9		156.6		8.9		(175.5)		—		5,390.0			5,718.6		307.1		187.2		14.7		(294.2)		5,933.4
Cost of sales	Cost of sales															Cost of sales
Home sales ~~(5)~~(3)	Home sales ~~(5)~~(3)	4,082.3		—		—		—		(16.8)		—		4,065.5		Home sales ~~(5)~~(3)	4,325.1		0		0		0		(27.7)		4,297.4
Land/lot sales and other	Land/lot sales and other	10.2		157.0		—		—		(152.7)		(0.3)		14.2		Land/lot sales and other	13.8		262.5		0		0		(249.5)		26.8
Inventory and land option charges	Inventory and land option charges	4.9		0.1		—		—		—		—		5.0		Inventory and land option charges	7.9		0.4		0		0		0		8.3
		4,097.4		157.1		—		—		(169.5)		(0.3)		4,084.7			4,346.8		262.9		0		0		(277.2)		4,332.5
Selling, general and administrative expense	Selling, general and administrative expense	415.1		11.2		93.9		7.1		—		0.2		527.5		Selling, general and administrative expense	451.2		15.5		109.5		9.6		0.1		585.9
Gain on sale of assets																Gain on sale of assets	(13.1)		0		0		(0.9)		0		(14.0)
Other (income) expense	Other (income) expense	(0.2)		(0.7)		(6.1)		2.4		—		—		(4.6)		Other (income) expense	(1.5)		(0.5)		(6.4)		3.8		(0.7)		(5.3)
Income (loss) before income taxes		$	709.8	$	10.3	$	68.8	$	(0.6)	$	(6.0)	$	0.1	$	782.4

Income before income taxes																Income before income taxes	$	935.2	$	29.2	$	84.1	$	2.2	$	(16.4)	$	1,034.3
Summary Cash Flow Information																Summary Cash Flow Information
Depreciation and amortization																Depreciation and amortization	$	15.4	$	0.1	$	0.4	$	4.4	$	0.1	$	20.4
Cash (used in) provided by operating activities																Cash (used in) provided by operating activities	$	(269.2)	$	(158.7)	$	173.1	$	1.2	$	1.5	$	(252.1)

______________

(1)Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. ~~All purchase accounting adjustments are included in the Other Adjustments column.~~

(2)Amounts ~~represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts~~primarily represent the elimination of intercompany ~~transactions.~~

~~(4)Amounts represent~~transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

~~(5)~~(3)Amount in the Eliminations and Other Adjustments column represents the 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.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020


		Nine Months Ended June 30, 2020																											Three Months Ended December 31, 2019
		Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated			Homebuilding		Forestar (1)		Financial Services		Other		Eliminations and Other Adjustments (2)		Consolidated
		(In millions)																											(In millions)
Revenues:
Revenues																Revenues
Home sales	Home sales	$	13,434.2	$	—	$	—	$	—	$	—	$	—	$	13,434.2	Home sales	$	3,863.3	$	0	$	0	$	0	$	0	$	3,863.3
Land/lot sales and other	Land/lot sales and other	49.7		584.3		—		27.2		(548.6)		—		112.6		Land/lot sales and other	19.7		247.2		0		8.8		(221.2)		54.5
Financial services	Financial services	—		—		364.0		—		—		—		364.0		Financial services	0		0		102.9		0		0		102.9
		13,483.9		584.3		364.0		27.2		(548.6)		—		13,910.8			3,883.0		247.2		102.9		8.8		(221.2)		4,020.7
Cost of sales:
Cost of sales																Cost of sales
Home sales ~~(5)~~(3)	Home sales ~~(5)~~(3)	10,569.2		—		—		—		(34.4)		—		10,534.8		Home sales ~~(5)~~(3)	3,051.6		0		0		0		(6.7)		3,044.9
Land/lot sales and other	Land/lot sales and other	34.9		509.8		—		—		(476.6)		(1.0)		67.1		Land/lot sales and other	13.3		216.3		0		0		(194.1)		35.5
Inventory and land option charges	Inventory and land option charges	17.3		0.5		—		—		—		—		17.8		Inventory and land option charges	3.5		0.3		0		0		0		3.8
		10,621.4		510.3		—		—		(511.0)		(1.0)		10,619.7			3,068.4		216.6		0		0		(200.8)		3,084.2
Selling, general and administrative expense	Selling, general and administrative expense	1,135.3		32.8		257.7		23.9		—		0.4		1,450.1		Selling, general and administrative expense	358.4		10.5		77.9		8.8		0.2		455.8
Gain on sale of assets		—		(0.1)		—		(59.4)		—		—		(59.5)
Loss (gain) on sale of assets																Loss (gain) on sale of assets	0		0.1		0		(31.2)		0		(31.1)
Other (income) expense	Other (income) expense	(9.7)		(4.8)		(17.7)		5.8		—		—		(26.4)		Other (income) expense	(5.4)		(2.2)		(5.5)		1.6		0		(11.5)
Income before income taxes	Income before income taxes	$	1,736.9	$	46.1	$	124.0	$	56.9	$	(37.6)	$	0.6	$	1,926.9	Income before income taxes	$	461.6	$	22.2	$	30.5	$	29.6	$	(20.6)	$	523.3
Summary Cash Flow Information:
Summary Cash Flow Information																Summary Cash Flow Information
Depreciation and amortization	Depreciation and amortization	$	49.8	$	0.2	$	1.2	$	5.8	$	—	$	0.4	$	57.4	Depreciation and amortization	$	16.5	$	0.1	$	0.4	$	1.9	$	0.1	$	19.0
Cash provided by (used in) operating activities		$	1,157.0	$	(205.7)	$	(347.7)	$	2.1	$	(16.8)	$	—	$	588.9
Cash (used in) provided by operating activities																Cash (used in) provided by operating activities	$	(178.4)	$	(11.7)	$	83.5	$	3.9	$	(11.1)	$	(113.8)

______________

(2)Amounts ~~represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts~~primarily represent the elimination of intercompany ~~transactions.~~

~~(4)Amounts represent~~transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.

~~(5)~~(3)Amount in the Eliminations column represents the 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.~~

~~Table of Contents~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~

Three Months Ended June 30, 2019
Homebuilding Forestar (1) Financial Services Other (2) Eliminations (3) Other Adjustments (4) Consolidated
(In millions)
Revenues
Home sales $ 4,734.6 $ — $ — $ — $ — $ — $ 4,734.6
Land/lot sales and other 27.5 88.2 — 9.6 (73.2) — 52.1
Financial services — — 119.6 — — — 119.6
4,762.1 88.2 119.6 9.6 (73.2) — 4,906.3
Cost of sales
Home sales (5) 3,773.0 — — — (1.3) — 3,771.7
Land/lot sales and other 23.2 75.3 — — (66.0) 8.2 40.7
Inventory and land option charges 19.2 — — — — — 19.2
3,815.4 75.3 — — (67.3) 8.2 3,831.6
Selling, general and administrative expense 387.4 7.9 76.4 8.2 — 0.1 480.0
Gain on sale of assets — (1.5) — (22.6) — 1.5 (22.6)
Other (income) expense (2.5) (1.9) (4.9) (0.1) — — (9.4)
Income before income taxes $ 561.8 $ 8.4 $ 48.1 $ 24.1 $ (5.9) $ (9.8) $ 626.7

~~______________~~

~~(1)Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the~~ Other Adjustments ~~column.~~

~~(2)Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts represent the elimination of intercompany transactions.~~

~~(4)Amounts represent purchase accounting adjustments related to the Forestar acquisition.~~

~~(5)Amount in the Eliminations~~ column represents the 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.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

Nine Months Ended June 30, 2019
Homebuilding Forestar (1) Financial Services Other (2) Eliminations (3) Other Adjustments (4) Consolidated
(In millions)
Revenues:
Home sales $ 12,125.8 $ — $ — $ — $ — $ — $ 12,125.8
Land/lot sales and other 49.2 192.0 — 22.4 (141.8) — 121.8
Financial services — — 306.4 — — — 306.4
12,175.0 192.0 306.4 22.4 (141.8) — 12,554.0
Cost of sales:
Home sales (5) 9,716.5 — — — (3.1) — 9,713.4
Land/lot sales and other 37.6 149.6 — — (122.2) 20.0 85.0
Inventory and land option charges 41.0 — — — — — 41.0
9,795.1 149.6 — — (125.3) 20.0 9,839.4
Selling, general and administrative expense 1,071.4 19.8 213.4 22.1 — 0.3 1,327.0
Gain on sale of assets (2.0) (2.4) — (51.9) — 2.4 (53.9)
Other (income) expense (6.1) (4.6) (12.6) (0.4) — — (23.7)
Income before income taxes $ 1,316.6 $ 29.6 $ 105.6 $ 52.6 $ (16.5) $ (22.7) $ 1,465.2
Summary Cash Flow Information:
Depreciation and amortization $ 46.4 $ 0.2 $ 1.1 $ 4.3 $ — $ 0.4 $ 52.4
Cash provided by (used in) operating activities $ 605.7 $ (450.1) $ (65.5) $ (2.5) $ (2.5) $ (4.4) $ 80.7

~~______________~~

~~(1)~~Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.

~~(2)Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.~~

~~(3)Amounts represent the elimination of intercompany transactions.~~

~~(4)Amounts represent purchase accounting adjustments related to the Forestar acquisition.~~

~~(5)~~Amount in the Eliminations column represents the 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.

~~Table of Contents~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~


Homebuilding Inventories by Reporting Segment (1)	Homebuilding Inventories by Reporting Segment (1)	June 30, 2020		September 30, 2019		Homebuilding Inventories by Reporting Segment (1)	December 31, 2020		September 30, 2020
		(In millions)							(In millions)
East	East	$	1,262.3	$	1,288.8	East	$	1,444.3	$	1,328.3
Midwest	Midwest	917.8		836.8		Midwest	1,079.7		958.5
Southeast	Southeast	2,805.1		2,768.0		Southeast	3,142.8		2,919.9
South Central	South Central	2,903.2		2,533.2		South Central	3,255.8		2,879.9
Southwest	Southwest	669.6		574.4		Southwest	849.2		695.8
West	West	2,129.0		2,056.0		West	2,143.6		2,009.1
Corporate and unallocated (2)	Corporate and unallocated (2)	229.8		228.4		Corporate and unallocated (2)	223.1		223.5
		$	10,916.8	$	10,285.6		$	12,138.5	$	11,015.0

_________________

(1)Homebuilding inventories are the only assets included in the measure of homebuilding segment assets used by the Company’s chief operating decision makers.

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

Homebuilding Results by Reporting Segment Three Months Ended
June 30, Nine Months Ended
June 30,
2020 2019 2020 2019
(In millions)
Revenues
East $ 736.3 $ 675.2 $ 1,836.5 $ 1,640.9
Midwest 373.3 303.3 964.6 800.5
Southeast 1,629.1 1,388.1 4,096.4 3,607.2
South Central 1,376.4 1,178.0 3,401.5 3,040.8
Southwest 216.1 240.6 626.8 557.5
West 890.9 976.9 2,558.1 2,528.1
$ 5,222.1 $ 4,762.1 $ 13,483.9 $ 12,175.0
Inventory and Land Option Charges
East $ 0.2 $ 0.6 $ (0.1) $ 2.3
Midwest 0.4 1.3 1.9 1.8
Southeast 2.0 5.1 6.3 8.6
South Central 1.9 3.0 6.3 4.9
Southwest 0.1 0.3 0.1 0.5
West 0.3 8.9 2.8 22.9
$ 4.9 $ 19.2 $ 17.3 $ 41.0
Income before Income Taxes (1)
East $ 106.9 $ 74.1 $ 240.1 $ 158.0
Midwest 34.1 18.7 76.4 38.8
Southeast 233.5 168.4 567.4 411.6
South Central 201.8 164.3 490.7 389.6
Southwest 29.7 33.5 95.0 69.8
West 103.8 102.8 267.3 248.8
$ 709.8 $ 561.8 $ 1,736.9 $ 1,316.6

~~_________________~~


Homebuilding Results by Reporting Segment	Three Months Ended December 31,
	2020		2019
	(In millions)
Revenues
East	$	809.2	$	520.5
Midwest	413.1		282.6
Southeast	1,778.4		1,150.6
South Central	1,474.9		958.7
Southwest	232.6		211.0
West	1,010.4		759.6
	$	5,718.6	$	3,883.0
Inventory and Land Option Charges
East	$	0.6	$	0.1
Midwest	0.1		0.1
Southeast	6.7		1.4
South Central	0.1		1.5
Southwest	0.1		0.1
West	0.3		0.3
	$	7.9	$	3.5
Income before Income Taxes
East	$	132.5	$	59.9
Midwest	49.2		18.6
Southeast	305.8		146.3
South Central	264.7		132.6
Southwest	38.6		34.5
West	144.4		69.7
	$	935.2	$	461.6

~~(1)~~Expenses maintained at the corporate level consist primarily of interest and property taxes, which are capitalized and amortized to cost of sales or expensed directly, and the expenses related to operating the Company’s corporate office. The amortization of capitalized interest and property taxes is allocated to each homebuilding segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each homebuilding segment based on the segment’s inventory balances.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

NOTE C – INVENTORIES

At the end of each quarter, the Company reviews the performance and outlook for all of its communities and land inventories for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As of ~~June 30,~~December 31, 2020, the Company performed detailed impairment evaluations of communities and land inventories with a combined carrying value of ~~$52.1~~$33.5 million and ~~determined that no communities or land inventories were impaired. Accordingly, 0~~recorded impairment charges ~~were recorded~~of $5.6 million during the three months ended ~~June 30,~~December 31, 2020 ~~compared~~ to ~~$6.8 million~~reduce the carrying value of impaired land to fair value. There were 0 impairment charges recorded in the prior year period. During the nine months ended June 30, 2020 and 2019, impairment charges totaled $1.7 million and $18.6 million, respectively. Inventory impairments and the land option charges discussed below are included in cost of sales in the consolidated statements of operations.

As the Company manages its inventory investments across its operating markets to optimize returns and cash flows, it may modify its 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. During the latter part of March and into April, the impacts of the COVID-19 (C-19) pandemic and the related widespread reductions in economic activity began to adversely affect the Company’s business operations and the demand for its homes. Although demand for the Company’s homes was strong in May and June, there is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for the Company’s homes and availability of mortgage loans to homebuyers. The extent to which this impacts the Company’s operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on its customers, trade partners and employees, all of which are highly uncertain and cannot be predicted. If the housing market or economic conditions are adversely affected for a prolonged period due to C-19 or otherwise, the Company may be required to evaluate additional communities for potential impairment. These evaluations could result in additional impairment charges which could be significant.

During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were ~~$5.0~~$2.7 million and ~~$16.1~~$3.8 million, ~~respectively, compared to $12.4 million~~respectively. Inventory impairments and ~~$22.4 million~~land option charges are included in cost of sales in the ~~same periods~~consolidated statements of ~~fiscal 2019.~~operations.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

NOTE D – NOTES PAYABLE

The Company’s notes payable at their carrying amounts consist of the following:


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(In millions)							(In millions)
Homebuilding:	Homebuilding:					Homebuilding:
Unsecured:	Unsecured:					Unsecured:
Revolving credit facility	Revolving credit facility	$	—	$	—	Revolving credit facility	$	0	$	0
364-day revolving credit facility	364-day revolving credit facility	—		—		364-day revolving credit facility	0		0
4.0% senior notes due 2020 (1)		—		499.6
2.55% senior notes due 2020 (1)	2.55% senior notes due 2020 (1)	399.6		398.9		2.55% senior notes due 2020 (1)	0		399.8
4.375% senior notes due 2022 (1)	4.375% senior notes due 2022 (1)	349.1		348.8		4.375% senior notes due 2022 (1)	349.3		349.2
4.75% senior notes due 2023 (1)	4.75% senior notes due 2023 (1)	299.2		298.9		4.75% senior notes due 2023 (1)	299.3		299.2
5.75% senior notes due 2023 (1)	5.75% senior notes due 2023 (1)	398.6		398.4		5.75% senior notes due 2023 (1)	398.8		398.7
2.5% senior notes due 2024 (1)	2.5% senior notes due 2024 (1)	496.2		—		2.5% senior notes due 2024 (1)	496.6		496.5
2.6% senior notes due 2025 (1)	2.6% senior notes due 2025 (1)	494.8		—		2.6% senior notes due 2025 (1)	495.6		495.1
1.4% senior notes due 2027 (1)						1.4% senior notes due 2027 (1)	494.1		0
Other secured notes (2)	Other secured notes (2)	46.3		103.0		Other secured notes (2)	68.7		71.1
		2,483.8		2,047.6			2,602.4		2,509.6
Forestar:	Forestar:					Forestar:
Unsecured:	Unsecured:					Unsecured:
Revolving credit facility	Revolving credit facility	—		—		Revolving credit facility	0		0
3.75% convertible senior notes due 2020 (3)		—		119.1
8.0% senior notes due 2024 (4)		344.8		343.8
5.0% senior notes due 2028 (4)		295.8		—
8.0% senior notes due 2024 (3)						8.0% senior notes due 2024 (3)	345.5		345.2
5.0% senior notes due 2028 (3)						5.0% senior notes due 2028 (3)	296.1		295.9
Other secured notes						Other secured notes	12.5		0
		640.6		462.9			654.1		641.1
Financial Services:	Financial Services:					Financial Services:
Mortgage repurchase facility	Mortgage repurchase facility	1,172.9		888.9		Mortgage repurchase facility	969.1		1,132.6
		$	4,297.3	$	3,399.4		$	4,225.6	$	4,283.3

____________________________

(1)Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled ~~$11.7~~$14.1 million and ~~$5.4~~$10.7 million at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively.

(2)Homebuilding other secured notes ~~at June 30, 2020~~ excludes ~~$6.5~~$3.8 million and $4.8 million of earnest money notes payable due to ~~Forestar.~~Forestar at December 31, 2020 and September 30, 2020, respectively. These intercompany notes are eliminated in consolidation.

(3)~~Forestar’s 3.75% convertible senior notes due March 2020 included an unamortized fair value adjustment of $2.4 million at September 30, 2019.~~

~~(4)~~Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled ~~$9.4~~$8.4 million and ~~$6.2~~$8.9 million at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively.

Homebuilding:

The Company has a $1.59 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment. Letters of credit issued under the facility reduce the available borrowing capacity. The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is October 2, 2024. ~~Borrowings and repayments under the facility were $1.06 billion each during the nine months ended June 30, 2020.~~ At ~~June 30,~~December 31, 2020, there were 0 borrowings outstanding and ~~$127.8~~$151.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately ~~$1.46~~$1.44 billion.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

In May 2020, the Company entered into a credit agreement providing for a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments. The interest rate on borrowings under the 364-day revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is May 27, 2021. There were 0 borrowings outstanding under the facility ~~for the period from its inception through June 30,~~at December 31, 2020.

The Company’s homebuilding revolving credit facilities impose 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. Both facilities include substantially the same affirmative and negative covenants, events of default and financial covenants. These covenants are measured as defined in the credit agreements governing the facilities 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 facilities or cause any outstanding borrowings to become due and payable prior to maturity. The credit agreements governing the facilities and the indentures governing the senior notes also impose restrictions on the creation of secured debt and liens. At ~~June 30,~~December 31, 2020, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facilities and public debt obligations.

D.R. Horton has an automatically effective universal shelf registration statement filed with the SEC in August 2018, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.

In October ~~2019,~~2020, the Company issued $500 million principal amount of ~~2.5%~~1.4% senior notes due October 15, ~~2024,~~2027, with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is ~~2.7%~~1.6%. In ~~February~~December 2020, the Company repaid ~~$500~~$400 million principal amount of its ~~4.0%~~2.55% senior notes at maturity. In May 2020, the Company issued $500 million principal amount of 2.6% senior notes due October 15, 2025 with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 2.8%.

Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $500 million of the Company’s debt securities. The authorization has no expiration date. All of the $500 million authorization was remaining at ~~June 30,~~December 31, 2020.

Forestar:

Forestar has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments. 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 revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on Forestar’s book value of its real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At ~~June 30,~~December 31, 2020, there were 0 borrowings outstanding and ~~$31.6~~$40.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of ~~$348.4~~$339.5 million. The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

The Forestar revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require Forestar to maintain a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. 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.

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~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~

In February 2020, Forestar issued $300 million principal amount of 5.0% senior notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The notes are due March 1, 2028, with interest payable semiannually, and represent unsecured obligations of Forestar. The annual effective interest rate of these notes after giving effect to the amortization of financing costs is 5.2%. These notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreement. Forestar also has $350 million principal amount of 8.0% senior notes that mature April 15, 2024. In March 2020, Forestar repaid $118.9 million principal amount of its 3.75% convertible senior notes in cash at maturity.

Forestar’s revolving credit facility and its senior notes are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. At ~~June 30,~~December 31, 2020, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

December 31, 2020

Effective April 30, 2020, Forestar’s Board of Directors authorized the repurchase of up to $30 million of Forestar’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at December 31, 2020.

Financial Services:

The Company’s mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties upon receipt of funds from the counterparties. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility. ~~In May 2020, the mortgage repurchase facility was amended to increase its~~The total capacity toof the facility is $1.35 billion; however, the capacity ~~increases~~increased, without requiring additional commitments, to $1.575 billion for approximately 45 days around September 30, 2020 and increased again for approximately 30 days ~~at the end of the third quarter of fiscal 2020 and first quarter of fiscal 2021 and for approximately 45 days at the end of fiscal~~around December 31, 2020. The capacity of the facility can also be increased to $1.8 billion, subject to the availability of additional commitments. The maturity date of the facility is February 19, 2021. The Company is currently in discussions with its lenders and expects to renew and extend the facility on similar terms prior to its maturity date.

As of ~~June 30,~~December 31, 2020, ~~$1.39~~$1.31 billion of mortgage loans held for sale with a collateral value of ~~$1.36~~$1.29 billion were pledged under the mortgage repurchase facility. As a result of advance paydowns totaling $319.4 million, DHI Mortgage had an obligation of ~~$1.2 billion~~$969.1 million outstanding under the mortgage repurchase facility at ~~June 30,~~December 31, 2020 at a 2.4% annual interest rate.

The mortgage repurchase facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants are measured and reported to the lenders monthly. At ~~June 30,~~December 31, 2020, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

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~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~

NOTE E – CAPITALIZED INTEREST

The Company capitalizes interest costs incurred to inventory during active development and construction (active inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. During periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During the first ~~nine~~three months of fiscal ~~2020~~2021 and fiscal ~~2019,~~2020, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.

The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019:


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(In millions)														(In millions)
Capitalized interest, beginning of period	Capitalized interest, beginning of period	$	200.5	$	173.9	$	180.1	$	162.7	Capitalized interest, beginning of period	$	207.7	$	180.1
Interest incurred (1)	Interest incurred (1)	38.0		38.1		113.3		104.8		Interest incurred (1)	40.4		37.7
Interest charged to cost of sales	Interest charged to cost of sales	(32.8)		(34.3)		(87.7)		(89.8)		Interest charged to cost of sales	(33.0)		(25.7)
Capitalized interest, end of period	Capitalized interest, end of period	$	205.7	$	177.7	$	205.7	$	177.7	Capitalized interest, end of period	$	215.1	$	192.1

_______________

(1) Interest incurred included interest on the Company's mortgage repurchase facility of ~~$4.3~~$4.5 million and ~~$14.0~~$4.7 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019, respectively, and ~~$4.5 million and $10.8 million in the same periods of fiscal 2019. Also included in interest incurred is~~ Forestar interest of ~~$11.4~~$11.5 million and ~~$29.8~~$8.7 million in ~~the three and nine months ended June 30, 2020, respectively, and $7.9 million and $10.7 million in the same periods of fiscal 2019.~~those periods.

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~~June 30,~~December 31, 2020

NOTE F – PROPERTY AND EQUIPMENT

The Company’s property and equipment balances and the related accumulated depreciation at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 are summarized below. These balances include properties related to the operations of DHI Communities, which develops, constructs and owns multi-family residential properties that produce rental income. DHI Communities had 4 projects under active construction and 1 project that was substantially complete at June 30, 2020.

June 30,
2020 September 30,
2019
(In millions)
Buildings and improvements (1) (2)
$ 349.7 $ 329.4
Multi-family rental properties under construction 86.2 65.2
Single-family rental properties 118.9 37.0
Model home furniture 136.4 128.3
Office furniture and equipment 129.1 128.6
Land (1) (2)
100.3 71.6
Total property and equipment $ 920.6 $ 760.1
Accumulated depreciation (288.7) (260.9)
Property and equipment, net $ 631.9 $ 499.2

~~_____________~~

~~(1)~~At June 30, 2020, buildings and improvements included $63.5 million related to completed multi-family rental properties and $65.1 million related to the Company’s oil and gas related assets. Additionally, at June 30, 2020, land included $60.0 million related to the Company’s multi-family rental operations.

~~(2)~~At September 30, 2019, buildings and improvements included $50.7 million related to completed multi-family rental properties and $56.9 million related to the Company’s oil and gas related assets. Additionally, at September 30, 2019, land included $38.0 million related to the Company’s multi-family rental operations.


	December 31, 2020		September 30, 2020
	(In millions)
Homebuilding
Buildings and improvements	$	272.7	$	267.4
Model home furniture	134.4		134.0
Office furniture and equipment	109.4		108.1
Land	31.8		32.3
Single-family rental operations
Single-family rental properties	89.3		68.1
Land	17.3		19.1
Total single-family rental operations	106.6		87.2
Accumulated depreciation	(266.6)		(256.2)
Total homebuilding	388.3		372.8
Other Businesses
Multi-family rental operations
Multi-family rental properties	204.2		173.8
Land	77.0		58.3
Total multi-family rental operations	281.2		232.1
Oil and gas related assets	69.2		69.7
Office furniture and equipment	16.1		15.6
Land	19.7		19.7
Accumulated depreciation	(27.1)		(28.2)
Total other businesses	359.1		308.9
Forestar, net	1.9		1.1
Financial services, net	3.7		3.9
Eliminations	(4.6)		(3.0)
Property and equipment, net	$	748.4	$	683.7

Depreciation expense was ~~$17.1~~$17.8 million and ~~$51.6~~$17.2 million during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively, compared to $16.7 million~~ and ~~$48.4 million in the same periods of fiscal 2019.~~2019, respectively.

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

~~June 30,~~December 31, 2020

NOTE G – MORTGAGE LOANS

Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. At ~~June~~December 31, 2020, mortgage loans held for sale had an aggregate carrying value of $1.44 billion and an aggregate outstanding principal balance of $1.37 billion. At September 30, 2020, mortgage loans held for sale had an aggregate carrying value of ~~$1.5~~$1.53 billion and an aggregate outstanding principal balance of ~~$1.4 billion. At September 30, 2019, mortgage loans held for sale had an aggregate carrying value of $1.1 billion and an aggregate outstanding principal balance of $1.0~~$1.46 billion. During the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019, mortgage loans originated totaled ~~$8.4~~$3.5 billion and ~~$6.0~~$2.3 billion, respectively, and mortgage loans sold totaled ~~$8.0~~$3.6 billion and ~~$5.8~~$2.3 billion, respectively. The Company had gains on sales of loans and servicing rights of ~~$116.7 million and $263.7~~$138.9 million during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$85.4 million and $218.3~~$73.6 million in the prior year ~~periods.~~period. Net gains on sales of loans and servicing rights are included in revenues in the consolidated statements of operations. ~~Approximately 93%~~During the three months ended December 31, 2020, approximately 66% of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae) or into securities backed by ~~DHI~~the Government National Mortgage ~~during the nine months ended June 30, 2020~~Association (Ginnie Mae) and 27% were sold to ~~four~~two other major financial ~~entities, of which one entity purchased 36%.~~entities.

In response to ~~C-19,~~the COVID-19 pandemic (C-19), the U.S. government has taken various actions to support the economy and the continued functioning of the financial markets. OnIn March ~~27,~~ 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which included changes to current forbearance options for government-backed loans designed to keep homeowners in their homes. Due to the uncertainty surrounding these forbearance options, servicing values declined rapidly at the end of March. ~~The~~As a result, the Company began retaining the servicing rights on ~~some~~a portion of its loan ~~originations during~~originations. Servicing values have since improved, and the Company sold a portion of its retained mortgage servicing rights in the three months ended ~~June 30,~~December 31, 2020. The Company expects to continue retaining some servicing rights prior to selling them to third parties, typically within six months of loan origination. At ~~June~~December 31, 2020 and September 30, 2020, the fair value of mortgage servicing rights was ~~$10.0~~$9.8 million and $17.1 million, respectively, and is included in other assets in the consolidated balance ~~sheet.~~sheets.

The Company also ~~occasionally~~ uses hedging instruments as part of a program to offer below market interest rate financing to its ~~homebuyers in certain markets.~~homebuyers. At ~~June~~December 31, 2020 and September 30, 2020, the Company had mortgage-backed securities (MBS) totaling ~~$1.3~~$1.4 billion and $1.1 billion, respectively, that did not yet have interest rate lock commitments or closed loans created or assigned and recorded a liability of ~~$11.7~~$7.5 million and $5.3 million for the fair value of such MBS position.

NOTE H – INCOME TAXES

The Company’s income tax expense for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 was ~~$149.5~~$239.1 million and ~~$377.6~~$90.8 million, ~~respectively, compared to $153.1 million and $350.5 million in the prior year periods.~~respectively. The effective tax rate was ~~19.1% and 19.6%~~23.1% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~24.4% and 23.9%~~17.4% in the prior year periods. The effective tax rate for the three and nine months ended June 30, 2020 includes a tax benefit of $38.1 million and $77.6 million, respectively, from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). The Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020.period. The effective tax rates for ~~all~~both periods include an expense for state income taxes ~~reduced by~~and tax benefits related to stock-based ~~compensation.~~compensation and the federal energy efficient homes tax credit. For the three months ended December 31, 2019, the retroactive reinstatement of the federal energy efficient homes tax credit for homes closed from January 1, 2018 to September 30, 2019 reduced the effective tax rate by 5.6%.

The Company’s deferred tax assets, net of deferred tax liabilities, were ~~$172.2~~$149.5 million at ~~June 30,~~December 31, 2020 compared to ~~$181.8~~$152.4 million at September 30, ~~2019.~~2020. The Company has a valuation allowance of ~~$13.6~~$7.5 million at ~~June~~December 31, 2020 and September 30, 2020 ~~and $18.7 million at September 30, 2019~~ related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance with respect to the remaining state NOL carryforwards. Any reversal of the valuation allowance in future periods will impact the Company’s effective tax rate.

The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.

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

~~June 30,~~December 31, 2020

NOTE I – EARNINGS PER SHARE

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


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(In millions)														(In millions)
Numerator:	Numerator:									Numerator:
Net income attributable to D.R. Horton, Inc.	Net income attributable to D.R. Horton, Inc.	$	630.7	$	474.8	$	1,544.7	$	1,113.2	Net income attributable to D.R. Horton, Inc.	$	791.8	$	431.3
Denominator:	Denominator:									Denominator:
Denominator for basic earnings per share — weighted average common shares	Denominator for basic earnings per share — weighted average common shares	363.8		372.3		366.0		373.5		Denominator for basic earnings per share — weighted average common shares	364.4		368.3
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
Employee stock awards	Employee stock awards	3.9		4.6		4.4		4.7		Employee stock awards	5.6		5.1
Denominator for diluted earnings per share — adjusted weighted average common shares	Denominator for diluted earnings per share — adjusted weighted average common shares	367.7		376.9		370.4		378.2		Denominator for diluted earnings per share — adjusted weighted average common shares	370.0		373.4

Basic net income per common share attributable to D.R. Horton, Inc.	Basic net income per common share attributable to D.R. Horton, Inc.	$	1.73	$	1.28	$	4.22	$	2.98	Basic net income per common share attributable to D.R. Horton, Inc.	$	2.17	$	1.17
Diluted net income per common share attributable to D.R. Horton, Inc.	Diluted net income per common share attributable to D.R. Horton, Inc.	$	1.72	$	1.26	$	4.17	$	2.94	Diluted net income per common share attributable to D.R. Horton, Inc.	$	2.14	$	1.16

NOTE J – STOCKHOLDERS’ EQUITY

D.R. Horton has an automatically effective universal shelf registration statement, filed with the SEC in August 2018, registering debt and equity securities that it may issue from time to time in amounts to be determined.

Forestar also has an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity securities. ~~On September 30, 2019, Forestar issued approximately 6.0 million shares~~As of ~~its common stock for $17.50 per share in a public underwritten offering. Following the offering,~~December 31, 2020, $394.3 million ~~remains~~remained available for issuance under Forestar’s shelf registration ~~statement.~~statement, $100 million of which is reserved for sales under its at-the-market equity offering program that became effective in August 2020. As of December 31, 2020, 0 shares had been issued under the at-the-market equity offering program.

Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s common stock. The authorization has no expiration date. During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, the Company repurchased ~~7.0~~1.0 million shares of its common stock for ~~$360.4 million, none of which were purchased in the three months ended June 30, 2020.~~$69.8 million. The Company’s remaining authorization at ~~June 30,~~December 31, 2020 was ~~$535.3~~$465.5 million.

During ~~each of~~ the ~~first~~ three quarters of fiscal 2020, the Board of Directors approved and paid quarterly cash dividends of $0.175 per common share, the most recent of which was paid on May 21, 2020 to stockholders of record on May 11, 2020. In Julymonths ended December 31, 2020, the Board of Directors approved a quarterly cash dividend of ~~$0.175~~$0.20 per common share, ~~payable~~which was paid on ~~August 24,~~December 14, 2020 to stockholders of record on ~~August 12,~~December 4, 2020. In January 2021, the Board of Directors approved a quarterly cash dividend of $0.20 per common share, payable on February 25, 2021 to stockholders of record on February 17, 2021. Cash dividends of ~~$0.15~~$0.175 per common share were approved and paid in each quarter of fiscal ~~2019.~~

2020.

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

~~June 30,~~December 31, 2020

NOTE K – EMPLOYEE BENEFIT PLANS

Restricted Stock Units (RSUs)

The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors. Restricted stock unit awards may be based on performance (performance-based) or on service over a requisite time period (time-based). Performance-based and time-based RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied. The RSUs have no dividend or voting rights until vested.

In November ~~2019, a total of~~2020, the Company granted 360,000 performance-based RSU equity awards ~~were granted~~ to ~~the Company’s~~its executive officers. These awards vest at the end of a three-year performance period ending September 30, ~~2022.~~2023. 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 are total shareholder return; return on investment; selling, general and administrative expense containment; and gross profit. The grant date fair value of these equity awards was ~~$52.54~~$70.60 per unit. Compensation expense related to this grant was ~~$2.5 million and $7.0~~$3.2 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020, ~~respectively,~~ based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.

During the nine months ended June 30, 2020, a total of 1.7 million time-based RSUs were granted to approximately 960 recipients, including the Company’s executive officers, other key employees and non-management directors. The weighted average grant date fair value of these equity awards was $35.98 per unit, and they vest annually in equal installments over periods of ~~three~~ to ~~five~~ years. Compensation expense related to these grants was $3.4 million and $7.5 million in the three and nine months ended June 30, 2020, respectively, of which $3.5 million related to expense recognized for employees that were retirement eligible on the date of grant.

~~Total stock-based~~Stock-based compensation expense related to the Company’s performance-based and time-based restricted stock units ~~during the three and nine months ended June 30, 2020~~ was ~~$20.4 million and $56.6 million, respectively, compared to $16.8 million and $51.1~~$21.2 million during the three ~~and nine~~ months ended ~~June 30, 2019, respectively.~~December 31, 2020 compared to $15.9 million during the three months ended December 31, 2019.

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

~~June 30,~~December 31, 2020

NOTE L – COMMITMENTS AND CONTINGENCIES

Warranty Claims

The Company provides its homebuyers with a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems and a one-year limited warranty on other construction components. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.

Changes in the Company’s warranty liability during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 were as follows:


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(In millions)														(In millions)
Warranty liability, beginning of period	Warranty liability, beginning of period	$	262.7	$	213.9	$	247.3	$	202.0	Warranty liability, beginning of period	$	310.2	$	247.3
Warranties issued	Warranties issued	29.4		25.8		75.1		64.7		Warranties issued	33.3		21.2
Changes in liability for pre-existing warranties	Changes in liability for pre-existing warranties	5.7		9.4		14.0		20.9		Changes in liability for pre-existing warranties	2.6		2.7
Settlements made	Settlements made	(16.5)		(20.1)		(55.1)		(58.6)		Settlements made	(22.1)		(19.6)
Warranty liability, end of period	Warranty liability, end of period	$	281.3	$	229.0	$	281.3	$	229.0	Warranty liability, end of period	$	324.0	$	251.6

Legal Claims and Insurance

The Company is named as a defendant in various claims, complaints and other legal actions in the ordinary course of business. At any point in time, the Company is managing several hundred individual claims related to construction defect matters, personal injury claims, employment matters, land development issues, contract disputes and other matters. 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 ~~$461.3~~$491.8 million and ~~$434.7~~$473.8 million at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets. Approximately 99% of these reserves related to construction defect matters at both ~~June 30,~~December 31, 2020 and September 30, ~~2019.~~2020. Expenses related to the Company’s legal contingencies were ~~$41.1~~$17.4 million and ~~$19.9~~$16.6 million in the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019, respectively.

Changes in the Company’s legal claims reserves during the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019 were as follows:


		Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019			2020		2019
		(In millions)							(In millions)
Reserves for legal claims, beginning of period	Reserves for legal claims, beginning of period	$	434.7	$	408.1	Reserves for legal claims, beginning of period	$	473.8	$	434.7
Increase in reserves	Increase in reserves	57.1		45.5		Increase in reserves	24.2		21.1
Payments	Payments	(30.5)		(12.7)		Payments	(6.2)		(23.3)
Reserves for legal claims, end of period	Reserves for legal claims, end of period	$	461.3	$	440.9	Reserves for legal claims, end of period	$	491.8	$	432.5

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

~~June 30,~~December 31, 2020

The Company estimates and records receivables under its applicable insurance policies related to its estimated contingencies for known claims and anticipated future construction defect claims on previously closed homes and other legal claims and lawsuits incurred in the ordinary course of business when recovery is probable. However, because the self-insured retentions under these policies are significant, the Company anticipates it will largely be self-insured. The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $82.2 million, $81.2 million and $76.9 million at December 31, 2020, September 30, 2020 and December 31, 2019, respectively, and are included in other assets in the consolidated balance sheets. Additionally, the Company may have the ability to recover a portion of its losses from its subcontractors and their insurance carriers when the Company has been named as an additional insured on their insurance policies. The Company’s receivables related to its estimates of insurance recoveries from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $82.4 million, $75.1 million and $69.8 million at June 30, 2020, September 30, 2019 and June 30, 2019, respectively, and are included in other assets in the consolidated balance sheets.

The estimation of losses related to these reserves and the related estimates of recoveries from insurance policies are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to the Company’s markets and the types of products built, claim frequency, claim settlement costs and patterns, insurance industry practices and legal interpretations, among others. Due to the high degree of judgment required in establishing reserves for these contingencies, actual future costs and recoveries from insurance could differ significantly from current estimated amounts, and it is not possible for the Company to make a reasonable estimate of the possible loss or range of loss in excess of its reserves.

Land and Lot Purchase Contracts

The Company enters into land and lot purchase contracts to acquire land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-acquisition costs are expensed to inventory and land option charges when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means.

At ~~June 30,~~December 31, 2020, the Company’s homebuilding segment had total deposits of ~~$561.9~~$776.0 million, consisting of cash deposits of ~~$517.4~~$710.3 million and promissory notes and surety bonds of ~~$44.5~~$65.7 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately ~~$8.5~~$11.9 billion. The majority of land and lots under contract are currently expected to be purchased within three years. Of these amounts, ~~$97.9~~$122.9 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of ~~$1.0~~$1.3 billion. A limited number of the homebuilding land and lot purchase contracts at ~~June 30,~~December 31, 2020, representing ~~$50.8~~$73.5 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 ~~$50.8~~$73.5 million remaining purchase price subject to specific performance provisions, ~~$11.5~~$41.5 million related to contracts between the homebuilding segment and Forestar.

During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019, Forestar reimbursed the homebuilding segment ~~$7.0~~$16.1 million and ~~$23.2~~$10.7 million, respectively, for previously paid earnest money and ~~$12.9~~$20.9 million and ~~$26.2~~$5.2 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar. During the three and nine months ended June 30, 2019, Forestar reimbursed the homebuilding segment $10.8 million and $27.6 million, respectively, for previously paid earnest money and $4.7 million and $8.4 million, respectively, for pre-acquisition and other due diligence costs.

Other Commitments

At ~~June 30,~~December 31, 2020, the Company had outstanding surety bonds of ~~$1.7~~$1.9 billion and letters of credit of ~~$159.4~~$192.1 million to secure performance under various contracts. Of the total letters of credit, ~~$127.8~~$151.6 million were issued under the homebuilding revolving credit facility and ~~$31.6~~$40.5 million were issued under Forestar’s revolving credit facility.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

NOTE M – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES

The Company’s other assets at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 were as follows:


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(In millions)							(In millions)
Earnest money and refundable deposits	Earnest money and refundable deposits	$	560.1	$	540.0	Earnest money and refundable deposits	$	763.4	$	657.1
Insurance receivables	Insurance receivables	82.4		75.1		Insurance receivables	82.2		81.2
Other receivables	Other receivables	130.2		103.6		Other receivables	145.6		143.1
Prepaid assets	Prepaid assets	35.0		49.6		Prepaid assets	53.4		46.0
Interest rate lock commitments	Interest rate lock commitments	28.9		19.2		Interest rate lock commitments	26.4		31.3
Margin deposits	Margin deposits	29.2		19.6		Margin deposits	33.4		16.2
Multi-family rental property held for sale		—		28.9
Contract assets - insurance agency commissions	Contract assets - insurance agency commissions	44.9		39.3		Contract assets - insurance agency commissions	49.1		47.1
Lease right of use assets	Lease right of use assets	35.5		—		Lease right of use assets	33.4		34.7
Mortgage servicing rights	Mortgage servicing rights	10.0		—		Mortgage servicing rights	9.8		17.1
Other	Other	49.7		37.5		Other	39.5		39.9
		$	1,005.9	$	912.8		$	1,236.2	$	1,113.7

The Company’s accrued expenses and other liabilities at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 were as follows:


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
		(In millions)							(In millions)
Reserves for legal claims	Reserves for legal claims	$	461.3	$	434.7	Reserves for legal claims	$	491.8	$	473.8
Employee compensation and related liabilities	Employee compensation and related liabilities	309.9		282.1		Employee compensation and related liabilities	361.8		376.1
Warranty liability	Warranty liability	281.3		247.3		Warranty liability	324.0		310.2
Mortgage hedging instruments and loan commitments	Mortgage hedging instruments and loan commitments	36.6		—		Mortgage hedging instruments and loan commitments	41.3		16.5
Accrued interest	Accrued interest	36.5		26.3		Accrued interest	37.9		35.3
Federal and state income tax liabilities	Federal and state income tax liabilities	168.3		33.4		Federal and state income tax liabilities	281.8		42.6
Inventory related accruals	Inventory related accruals	53.3		61.5		Inventory related accruals	68.5		59.7
Customer deposits	Customer deposits	74.0		57.7		Customer deposits	110.5		93.1
Accrued property taxes	Accrued property taxes	30.2		40.1		Accrued property taxes	32.6		44.1
Lease liabilities	Lease liabilities	38.1		—		Lease liabilities	35.5		37.0
Other	Other	98.8		95.0		Other	153.2		118.6
		$	1,588.3	$	1,278.1		$	1,938.9	$	1,607.0

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

NOTE N – FAIR VALUE MEASUREMENTS

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis at ~~June 30,~~December 31, 2020 and September 30, ~~2019.~~2020. Changes in the fair value of the Level 3 assets during the ~~nine~~three months ended ~~June 30,~~December 31, 2020 and 2019 were not material.


			Fair Value at June 30, 2020																Fair Value at December 31, 2020
		Balance Sheet Location	Level 1		Level 2		Level 3		Total			Balance Sheet Location	Level 1		Level 2		Level 3		Total
			(In millions)																(In millions)
Debt securities collateralized by residential real estate	Debt securities collateralized by residential real estate	Other assets	$	—	$	—	$	3.9	$	3.9	Debt securities collateralized by residential real estate	Other assets	$	0	$	0	$	3.9	$	3.9
Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale	—		1,474.8		17.7		1,492.5		Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale	0		1,411.6		17.9		1,429.5
Mortgage servicing rights ~~(b)~~(2)	Mortgage servicing rights ~~(b)~~(2)	Other assets	—		—		10.0		10.0		Mortgage servicing rights ~~(b)~~(2)	Other assets	0		0		9.8		9.8
Derivatives not designated as hedging instruments (c):
Derivatives not designated as hedging instruments (3):											Derivatives not designated as hedging instruments (3):
Interest rate lock commitments	Interest rate lock commitments	Other assets	—		28.9		—		28.9		Interest rate lock commitments	Other assets	0		26.4		0		26.4
Forward sales of mortgage-backed securities	Forward sales of mortgage-backed securities	Other liabilities	—		(33.0)		—		(33.0)		Forward sales of mortgage-backed securities	Other liabilities	0		(38.5)		0		(38.5)
Best-efforts and mandatory commitments		Other liabilities	—		(0.7)		—		(0.7)


			Fair Value at September 30, 2019																Fair Value at September 30, 2020
		Balance Sheet Location	Level 1		Level 2		Level 3		Total			Balance Sheet Location	Level 1		Level 2		Level 3		Total
			(In millions)																(In millions)
Debt securities collateralized by residential real estate	Debt securities collateralized by residential real estate	Other assets	$	—	$	—	$	3.9	$	3.9	Debt securities collateralized by residential real estate	Other assets	$	0	$	0	$	3.9	$	3.9
Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale	—		1,055.3		9.8		1,065.1		Mortgage loans held for sale ~~(a)~~(1)	Mortgage loans held for sale	0		1,503.2		15.1		1,518.3
Derivatives not designated as hedging instruments (c):
Mortgage servicing rights (2)											Mortgage servicing rights (2)	Other assets	0		0		17.1		17.1
Derivatives not designated as hedging instruments (3):											Derivatives not designated as hedging instruments (3):
Interest rate lock commitments	Interest rate lock commitments	Other assets	—		19.2		—		19.2		Interest rate lock commitments	Other assets	0		31.3		0		31.3
Forward sales of mortgage-backed securities	Forward sales of mortgage-backed securities	Other liabilities	—		(4.1)		—		(4.1)		Forward sales of mortgage-backed securities	Other liabilities	0		(16.2)		0		(16.2)
Best-efforts and mandatory commitments		Other liabilities	—		(1.0)		—		(1.0)

___________________

~~(a)~~(1)The Company typically elects the fair value option upon origination for mortgage loans held for sale. Interest income earned on mortgage loans held for sale is based on contractual interest rates and included in other income. Mortgage loans held for sale valued using Level 3 inputs at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 include ~~$17.7~~$17.9 million and ~~$9.8~~$15.1 million, respectively, of loans for which the Company elected the fair value option upon origination and did not sell into the secondary market. The fair value of these mortgage loans held for sale is generally calculated considering pricing in the secondary market and adjusted for the value of the underlying collateral, including interest rate risk, liquidity risk and prepayment risk. The Company plans to sell these loans as market conditions permit.

~~(b)~~(2)Although the majority of the Company’s mortgage loans are sold on a servicing-released basis, when the servicing rights are retained, the Company records them at fair value using third-party valuations. The key assumptions used in the valuation, which are generally unobservable inputs, are mortgage prepayment rates, discount rates and delinquency rates, which were 11%, 11% and 5%, respectively, at December 31, 2020 and 13%, 11% and 5%, respectively, ~~for the three months ended June~~at September 30, 2020.

~~(c)~~(3)Fair value measurements of these derivatives represent changes in fair value, as calculated by reference to quoted prices for similar assets, and are reflected in the balance sheet as other assets or accrued expenses and other liabilities. Changes in the fair value of these derivatives are included in revenues in the consolidated statements of operations. The net fair value change for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 recognized in revenues in the consolidated statements of operations was not significant.

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D.R. HORTON, INC. AND SUBSIDIARIES

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

~~June 30,~~December 31, 2020

The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at ~~June 30,~~December 31, 2020 and September 30, ~~2019:~~2020:

Fair Value at
June 30, 2020 Fair Value at
September 30, 2019
Balance Sheet Location Level 2 Level 3 Level 2 Level 3
(In millions)
Inventory held and used (a) (b) Inventories $ — $ — $ — $ 4.5
Mortgage loans held for sale (a) (c) Mortgage loans held for sale — 4.2 — 2.7
Other mortgage loans (a) (d) Other assets — 2.8 — 1.8


		Fair Value at December 31, 2020				Fair Value at September 30, 2020
	Balance Sheet Location	Level 2		Level 3		Level 2		Level 3
		(In millions)
Inventory held and used (1) (2)	Inventories	$	0	$	9.7	$	0	$	0
Mortgage loans held for sale (1) (3)	Mortgage loans held for sale	0		1.5		1.5		2.2
Other mortgage loans (1) (4)	Other assets	0		1.1		0.6		2.0

___________________

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

~~(b)~~(2)~~In performing its impairment analysis~~The fair value of ~~communities, discount rates ranging~~inventory was determined based on recent offers received from ~~16% to 18% were used in the periods presented.~~outside parties.

~~(c)~~(3)These mortgage loans have some degree of impairment affecting their marketability and are valued at the lower of carrying value or fair value. When available, quoted prices in the secondary market are used to determine fair value (Level 2); otherwise, a cash flow valuation model is used to determine fair value (Level 3).

~~(d)~~(4)The fair values of other mortgage loans was determined based on the value of the underlying collateral.

For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both their respective carrying value and fair value at ~~June 30,~~December 31, 2020 and September 30, ~~2019:~~2020:


		Carrying Value		Fair Value at June 30, 2020																					Carrying Value			Fair Value at December 31, 2020
						Level 1			Level 2			Level 3			Total			Carrying Value		Level 1			Level 2			Level 3			Total
		(In millions)																								(In millions)
Cash and cash equivalents ~~(a)~~(1)	Cash and cash equivalents ~~(a)~~(1)	$	2,353.5	$	2,353.5		$	—		$	—		$	2,353.5	Cash and cash equivalents ~~(a)~~(1)	$	2,454.9			$	2,454.9		$	0		$	0		$	2,454.9
Restricted cash ~~(a)~~(1)	Restricted cash ~~(a)~~(1)	19.2		19.2			—			—			19.2		Restricted cash ~~(a)~~(1)	20.0			20.0			0			0			20.0
Notes payable (b) (c)		4,297.3		—			3,253.4			1,219.2			4,472.6
Notes payable (2) (3)															Notes payable (2) (3)	4,225.6			0			3,389.9			1,050.3			4,440.2


		Carrying Value		Fair Value at September 30, 2019																					Carrying Value			Fair Value at September 30, 2020
						Level 1			Level 2			Level 3			Total			Carrying Value		Level 1			Level 2			Level 3			Total
		(In millions)																								(In millions)
Cash and cash equivalents ~~(a)~~(1)	Cash and cash equivalents ~~(a)~~(1)	$	1,494.3	$	1,494.3		$	—		$	—		$	1,494.3	Cash and cash equivalents ~~(a)~~(1)	$	3,018.5			$	3,018.5		$	0		$	0		$	3,018.5
Restricted cash ~~(a)~~(1)	Restricted cash ~~(a)~~(1)	19.7		19.7			—			—			19.7		Restricted cash ~~(a)~~(1)	21.6			21.6			0			0			21.6
Notes payable (b) (c)		3,399.4		—			2,533.9			991.9			3,525.8
Notes payable (2) (3)															Notes payable (2) (3)	4,283.3			0			3,285.5			1,203.7			4,489.2

___________________

~~(a)~~(1)The fair values of cash, cash equivalents and restricted cash approximate their carrying values due to their short-term nature and are classified as Level 1 within the fair value hierarchy.

~~(b)~~(2)The fair value of the senior notes is determined based on quoted prices, which is classified as Level 2 within the fair value hierarchy.

~~(c)~~(3)The fair values of other secured notes and borrowings on the revolving credit facilities and the mortgage repurchase facility approximate carrying value due to their short-term nature or floating interest rate terms, as applicable, and are classified as Level 3 within the fair value hierarchy.

~~Table of Contents~~

~~D.R. HORTON, INC. AND SUBSIDIARIES~~

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

~~June 30, 2020~~

~~NOTE O – RELATED PARTY TRANSACTIONS~~

In March 2019, the Company assigned its rights under a land purchase contract it entered into in December 2017 to R&R Riverview LLC (R&R), an entity owned by Ryan Horton and Reagan Horton, the adult sons of Donald R. Horton, the Company’s Chairman. In March 2019, R&R exercised its rights under the purchase contract and paid $77.5 million for 119 acres of undeveloped land in Arizona. In connection with the transaction, Donald R. Horton loaned R&R $77.5 million at a 2.55% annual interest rate and obtained a security interest in the land. Concurrent with the contract assignment to R&R, the Company entered into a land purchase contract with R&R to purchase the 119 acres for R&R’s cost plus an annualized return of 16%. In accordance with the Company’s policy on related party transactions, this transaction was reviewed and approved by a committee of the Board of Directors composed of independent directors.

The Company determined that R&R was a variable interest entity, and the Company had the power through its rights in its land purchase contract with R&R to control the activities that most significantly impact the entity’s economic performance, and the Company is the primary beneficiary. Accordingly, the Company consolidated the variable interest entity in its consolidated financial statements by increasing inventory and notes payable by $77.5 million, and this amount was included in those balances at September 30, 2019.

In October 2019, the Company paid R&R $84.2 million for all 119 acres of land and deconsolidated the variable interest entity from the financial statements. The purchase transaction was also reviewed and approved by a committee of the Board of Directors composed of independent directors.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this quarterly report and with our annual report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those described in the “Forward-Looking Statements” section following this discussion.

BUSINESS

D.R. Horton, Inc. 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 8890 markets across 29 states, primarily under the names of D.R. Horton, America’s ~~Builder;~~Builder, Emerald ~~Homes;~~Homes, Express Homes and Freedom Homes. 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. Horton,” the “Company,” “we” and “our” used herein refer to D.R. 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 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 ~~$100,000~~$150,000 to more than $1,000,000, with an average closing price of ~~$297,600~~$304,100 during the ~~nine~~three months ended ~~June 30,~~December 31, 2020. Approximately ~~91%~~92% of our home sales revenue in the ~~nine~~three months ended ~~June 30,~~December 31, 2020 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 product offerings include a broad range of homes for entry-level, move-up, active adult and luxury buyers across our markets. Our entry-level homes at affordable price points have experienced very strong demand from homebuyers, as the entry-level segment of the new home market remains under-served, with low inventory levels relative to demand.

During fiscal ~~2018,~~2020, we ~~acquired 75%~~began constructing and leasing homes as income-producing single-family rental communities. After a rental community is constructed and achieves a stabilized level of leased occupancy, we generally expect to market the community for a bulk sale of homes. These operations are reported in our homebuilding segment. During the three months ended December 31, 2020, we completed our first sale of a single-family rental community representing 124 homes for $31.8 million, resulting in a gain on sale of $14.0 million. At December 31, 2020, our homebuilding fixed assets included $106.6 million of assets related to our single-family rental platform, representing 13 communities totaling 890 single-family rental homes and finished lots, which included 440 completed homes.

At December 31, 2020, we owned 65% 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 ~~component~~key part of our homebuilding strategy to enhance operational and capital efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts. ~~At June 30,~~During fiscal 2019 and 2020, ~~we owned 65% of Forestar’s outstanding~~Forestar raised capital by issuing senior notes and common ~~stock.~~stock in the public markets and has invested this capital in land acquisition and development to expand its business across the United States.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets. DHI Mortgage, our 100% owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the majority of the related servicing rights to third-party purchasers. DHI Mortgage originates loans in accordance with purchaser guidelines and sells substantially all of its mortgage production shortly after origination. Our 100% owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination, underwriting and closing services, primarily related to our ~~homebuyers.~~homebuilding transactions.

Table of Contents

In addition to our homebuilding, Forestar and financial services operations, we ~~have subsidiaries that~~ engage in other business ~~activities. These subsidiaries~~activities through our subsidiaries. We conduct insurance-related operations, construct and own income-producing multi-family rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets. The ~~operating~~ results of these ~~subsidiaries~~operations are immaterial for separate reporting and therefore are grouped together and presented as other. ~~One of these subsidiaries, DHI Communities, develops, constructs~~Our multi-family rental operations develop, construct, lease and ~~owns~~own multi-family residential properties that produce rental income. ~~DHI Communities is~~We primarily ~~focused~~focus on constructing garden style multi-family ~~products,~~communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After ~~DHI Communities has completed~~we complete construction and ~~achieved~~achieve a stabilized level of leased occupancy, ~~rate,~~ the property is typically marketed for sale. At ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, our consolidated balance sheets included ~~$224.8~~$294.3 million and ~~$204.0~~$246.2 million, respectively, of multi-family rental assets. Total assets ~~owned by DHI Communities. The combined assets of all of our subsidiaries engaged in~~related to other business activities ~~totaled $361.3~~were $438.7 million and ~~$317.9~~$379.4 million at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively.

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OVERVIEW

~~Fiscal Year-to-Date~~First Quarter Operating Results

During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, the number and value of our net sales orders increased 56% and 62%, respectively, compared to the prior year period. During the three months ended December 31, 2020, our number of homes closed and home sales revenues increased ~~10%~~45% and ~~11%~~48%, respectively, compared to the prior year period, and our consolidated revenues increased ~~11%~~48% to ~~$13.9~~$5.9 billion compared to ~~$12.6~~$4.0 billion in the prior year period. Our pre-tax income was ~~$1.9~~$1.0 billion in the ~~nine~~three months ended ~~June 30,~~December 31, 2020 compared to ~~$1.5 billion~~$523.3 million in the prior year period, and our pre-tax operating margin was ~~13.9%~~17.4% compared to ~~11.7%~~13.0%. Net income was ~~$1.5 billion~~$795.2 million in the ~~nine~~three months ended ~~June 30,~~December 31, 2020 compared to $1.1 billion in the prior year period. The current nine month period results include a tax benefit of $77.6 million related to the retroactive reinstatement of the federal energy efficient homes tax credit.

~~Cash provided by our homebuilding operations was $1.2 billion in the nine months ended June 30, 2020 compared to $605.7~~$432.5 million in the prior year period.

In the trailing twelve months ended ~~June 30,~~December 31, 2020, our return on equity (ROE) was ~~19.9%~~24.4% compared to ~~17.3%~~18.2% in the prior year period, and our homebuilding return on inventory (ROI) was ~~21.6%~~28.0% compared to ~~18.1%~~18.7%. ROE is calculated as net income attributable to D.R. Horton for the trailing twelve months divided by average stockholders’ equity, where average stockholders’ equity is the sum of ending stockholders’ equity balances of the trailing five quarters divided by five. 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.

Within our homebuilding land and lot portfolio, our lots controlled under purchase contracts represent ~~66%~~72% of the lots owned and controlled at ~~June 30,~~December 31, 2020 compared to ~~60%~~70% at September 30, ~~2019~~2020 and 61% at ~~June 30,~~December 31, 2019. Our ~~focus on increasing~~relationship with Forestar and expanded relationships with other land developers across the country have allowed us to increase the controlled portion of our ~~finished~~ lot pipeline ~~has benefited from our relationship with Forestar, our majority-owned lot development company~~.

COVID-19

During ~~the latter part of~~ March 2020, the impacts of the COVID-19 pandemic (C-19) and the related widespread reductions in economic activity across the United States began to adversely affect our business. However, residential construction and financial services are designated as essential businesses as part of critical infrastructure in almost all of the municipalities across the U.S. where we operate. We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

During April 2020 when restrictive stay-at-home orders were in place for many markets across the United States, we experienced increases in sales cancellations and ~~decreases in~~decreased sales orders ~~and net sales orders for April were 1% lower than the same month in~~compared to the prior year. However, as economic activity began to resume and restrictive orders ~~began to be lifted,~~were eased, demand for our ~~weekly sales pace~~homes improved significantly during ~~May~~the remainder of fiscal 2020 and ~~June increased significantly, and our cancellation rate returned to normal levels. In both May and June, our net sales orders increased over 50% compared to~~ the ~~prior year periods. For the third~~first quarter of fiscal ~~2020, our net sales orders increased by 38% compared to the prior year quarter.~~2021.

We believe the increase in demand ~~in May and June was~~has been primarily fueled by increased buyer urgency due to lower interest rates on mortgage loans and the limited supply of homes at affordable price points across most of our ~~markets and to some extent the lower levels of home sales from mid-March through early April, which caused some pent-up demand.~~markets. We were and remain well-positioned for ~~this~~ increased demand with our affordable product offerings, lot supply and housing ~~inventory, particularly completed homes and those close to completion.~~inventory.

However, even with the resurgence of demand, ~~in May and June,~~ we remain cautious as to the ongoing impact of C-19 ~~may have~~ on our operations and on the overall ~~economy in the future.~~economy. There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability and cost of mortgage loans to homebuyers. The extent to which this impacts our operational and financial performance will depend on future developments, including the duration and ~~spread~~severity of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through ~~these~~ changing economic conditions. We plan to continue to generate strong cash flows from our homebuilding operations and manage our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments in each of our communities based on local housing market conditions.

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STRATEGY

Our operating strategy focuses on enhancing long-term value to our shareholders by leveraging our financial and competitive position in our core homebuilding business to ~~increase~~maximize the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to navigate ~~uncertain~~changing economic conditions and make opportunistic strategic investments. We have made operational adjustments as a result of ~~the COVID-19 pandemic;~~C-19; however, our strategy remains consistent and includes the following initiatives:

•Developing and retaining highly experienced and productive teams of personnel throughout our company that are aligned and focused on continuous improvement in our operational execution and financial performance.

•Maintaining a strong cash balance and overall liquidity position and controlling our level of debt.

•Allocating and actively managing our inventory investments across our operating markets to diversify our geographic risk.

•Offering new home communities that appeal to a broad range of entry-level, move-up, active adult and luxury homebuyers based on consumer demand in each market.

•Modifying product offerings, sales pace, home prices and sales incentives as necessary in each of our markets to meet consumer demand and maintain affordability.

•Delivering high quality homes and a positive experience to our customers both during and after the sale.

•Managing our inventory of homes under construction relative to demand in each of our markets, ~~to adjust to the impact of C-19, while continuing to start~~including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory.

•~~Monitoring our~~Investing in land ~~acquisition~~ and land development ~~investments to adjust to the impact of C-19, while still investing~~ in desirable markets, ~~and~~while controlling the level of land and lots we own in each market relative to the local new home demand.

•Continuing to seek opportunities to expand the portion of our land and finished lots controlled through purchase contracts with Forestar and ~~assist Forestar with its operations, while adjusting~~other land developers across the ~~timing of our lot purchases under contract, where necessary, to adjust to the impact of C-19.~~country.

•Controlling the cost of goods purchased from both vendors and subcontractors.

•Improving the efficiency of our land development, construction, sales and other key operational activities.

•Controlling our selling, general and administrative (SG&A) expense infrastructure to match production levels.

•Opportunistically evaluating potential acquisitions to enhance our operations and improve returns.

•Ensuring that our financial services business provides high quality mortgage and title services to homebuyers efficiently and effectively.

•Investing in the construction and leasing of ~~garden style~~single-family and multi-family rental properties to meet rental demand in high growth suburban markets and selling these properties profitably.

We believe our operating strategy, which has produced positive results in recent years, will allow us to successfully operate through ~~an uncertain~~changing economic ~~environment~~conditions to maintain and improve our financial and competitive ~~position and balance sheet strength.~~position. However, we cannot provide any assurances that the initiatives listed above will continue to be successful, and we may need to adjust ~~components~~parts of our strategy to meet future market conditions.

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KEY RESULTS

Key financial results as of and for the three months ended ~~June 30,~~December 31, 2020, as compared to the same period of 2019, were as follows:

Homebuilding:

•Homebuilding revenues increased ~~10%~~47% to ~~$5.2~~$5.7 billion compared to ~~$4.8~~$3.9 billion.

•Homes closed increased ~~10%~~45% to ~~17,642~~18,739 homes, and the average closing price of those homes was ~~$295,200.~~$304,100.

•Net sales orders increased ~~38%~~56% to ~~21,519~~20,418 homes, and the value of net sales orders increased ~~35%~~62% to ~~$6.3~~$6.4 billion.

•Sales order backlog increased ~~41%~~107% to ~~23,205~~28,487 homes, and the value of sales order backlog increased ~~41%~~111% to ~~$7.0~~$8.9 billion.

•Home sales gross margin was ~~21.6%~~24.1% compared to ~~20.3%~~21.0%.

•Homebuilding SG&A expense was 7.9% of homebuilding revenues compared to ~~8.1%~~9.2%.

•Homebuilding pre-tax income was ~~$709.8~~$935.2 million compared to ~~$561.8~~$461.6 million.

•Homebuilding pre-tax income was ~~13.6%~~16.4% of homebuilding revenues compared to ~~11.8%~~11.9%.

•Homebuilding cash and cash equivalents totaled ~~$1.9~~$2.1 billion compared to ~~$1.0~~$2.6 billion and ~~$577.9 million~~$1.2 billion at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Homebuilding inventories totaled ~~$10.9~~$12.1 billion compared to ~~$10.3~~$11.0 billion and ~~$10.7~~$10.9 billion at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Homes in inventory totaled ~~32,800~~42,100 compared to ~~27,700~~38,000 and ~~29,200~~30,200 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Owned lots totaled ~~115,200~~122,000 compared to ~~121,400~~112,600 and ~~118,500~~123,400 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively. Lots controlled through purchase contracts increased to ~~220,300~~318,700 from ~~185,900~~264,300 and ~~184,500~~195,600 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Homebuilding debt was ~~$2.5~~$2.6 billion compared to ~~$2.0 billion and $2.2~~$2.5 billion at both September 30, ~~2019~~2020 and ~~June 30, 2019, respectively.~~December 31, 2019.

•Homebuilding debt to total capital was ~~18.4%~~17.3% compared to ~~17.0%~~17.5% and ~~18.5%~~19.5% at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

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Forestar:

•Forestar’s revenues increased ~~102%~~24% to ~~$177.9~~$307.1 million compared to ~~$88.2~~$247.2 million. Revenues in the current and prior year quarters included ~~$175.5~~$294.2 million and ~~$73.2~~$221.2 million, respectively, of revenue from land and lot sales to our homebuilding segment.

•Forestar’s lots sold increased ~~75%~~47% to ~~2,023~~3,567 compared to ~~1,158.~~2,422. Lots sold to D.R. Horton totaled ~~1,991~~3,389 compared to ~~995.~~2,390.

•Forestar’s pre-tax income was ~~$10.3~~$29.2 million compared to ~~$8.4~~$22.2 million.

•Forestar’s pre-tax income was ~~5.8%~~9.5% of ~~Forestar~~ revenues compared to ~~9.5%~~9.0%.

•Forestar’s cash and cash equivalents totaled ~~$355.6~~$237.4 million compared to ~~$382.8~~$394.3 million and ~~$223.0~~$373.3 million at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Forestar’s inventories totaled ~~$1.3~~$1.5 billion compared to ~~$1.0~~$1.3 billion and $1.1 billion at ~~both~~ September 30, 2020 and December 31, 2019, ~~and June 30, 2019.~~respectively.

•~~Owned~~Forestar’s owned and controlled lots totaled ~~50,700~~77,500 compared to ~~38,300~~60,500 and ~~37,400~~44,500 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively. Of these lots, ~~29,600~~34,900 were under contract to sell to or subject to a right of first offer with D.R. Horton compared to ~~23,400~~30,400 and ~~24,100~~25,600 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Forestar’s debt was ~~$640.6~~$654.1 million compared to ~~$460.5~~$641.1 million and ~~$458.9~~$462.1 million at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Forestar’s debt to total capital was ~~43.1%~~42.3% compared to ~~36.3%~~42.4% and ~~39.8%~~35.9% at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

Financial Services:

•Financial services revenues increased ~~31%~~82% to ~~$156.6~~$187.2 million compared to ~~$119.6~~$102.9 million.

•Financial services pre-tax income increased 176% to $84.1 million compared to $30.5 million.

•Financial services pre-tax income was ~~$68.8 million compared to $48.1 million.~~

•~~Financial services pre-tax income was 43.9%~~44.9% of financial services revenues compared to ~~40.2%~~29.6%.

Consolidated Results:

•Consolidated pre-tax income increased ~~25%~~98% to ~~$782.4 million~~$1.0 billion compared to ~~$626.7~~$523.3 million.

•Consolidated pre-tax income was ~~14.5%~~17.4% of consolidated revenues compared to ~~12.8%~~13.0%.

•Income tax expense was ~~$149.5~~$239.1 million compared to ~~$153.1~~$90.8 million, and our effective tax rate was ~~19.1%~~23.1% compared to ~~24.4%~~17.4%.

•Net income attributable to D.R. Horton increased ~~33%~~84% to ~~$630.7~~$791.8 million compared to ~~$474.8~~$431.3 million.

•Diluted net income per common share attributable to D.R. Horton increased ~~37%~~84% to ~~$1.72~~$2.14 compared to ~~$1.26.~~$1.16.

•Stockholders’ equity was ~~$11.0~~$12.5 billion compared to ~~$10.0~~$11.8 billion and ~~$9.6~~$10.2 billion at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Book value per common share increased to ~~$30.38~~$34.33 compared to ~~$27.20~~$32.53 and ~~$26.08~~$27.92 at September 30, ~~2019~~2020 and ~~June 30,~~December 31, 2019, respectively.

•Debt to total capital was ~~28.0%~~25.3% compared to ~~25.3%~~26.6% at September 30, ~~2019~~2020 and ~~26.4%~~27.0% at ~~June 30,~~December 31, 2019.

~~Table of Contents~~

~~Key financial results for the nine months ended June 30, 2020, as compared to the same period of 2019, were as follows:~~

~~Homebuilding:~~

•~~Homebuilding revenues increased 11% to $13.5 billion compared to $12.2 billion.~~

•~~Homes closed increased 10% to 45,140 homes, and the average closing price of those homes was $297,600.~~

•~~Net sales orders increased 26% to 54,732 homes, and the value of net sales orders increased 27% to $16.3 billion.~~

•~~Home sales gross margin was 21.3% compared to 19.9%.~~

•~~Homebuilding SG&A expense was 8.4% of homebuilding revenues compared to 8.8%.~~

•~~Homebuilding pre-tax income was $1.7 billion compared to $1.3 billion.~~

•~~Homebuilding pre-tax income was 12.9% of homebuilding revenues compared to 10.8%.~~

•~~Net cash provided by homebuilding operations was $1.2 billion compared to $605.7 million.~~

~~Forestar:~~

•Forestar’s revenues increased 204% to $584.3 million compared to $192.0 million. Revenues in the current and prior year periods included $548.6 million and $141.8 million, respectively, of revenue from land and lot sales to our homebuilding segment.

•~~Forestar’s lots sold increased 188% to 6,396 compared to 2,224. Lots sold to D.R. Horton totaled 6,287 compared to 1,903.~~

•~~Forestar’s pre-tax income was $46.1 million compared to $29.6 million.~~

•~~Forestar’s pre-tax income was 7.9% of Forestar revenues compared to 15.4%.~~

~~Financial Services:~~

•~~Financial services revenues increased 19% to $364.0 million compared to $306.4 million.~~

•~~Financial services pre-tax income was $124.0 million compared to $105.6 million.~~

•~~Financial services pre-tax income was 34.1% of financial services revenues compared to 34.5%.~~

~~Consolidated Results:~~

•~~Consolidated pre-tax income increased 32% to $1.9 billion compared to $1.5 billion.~~

•~~Consolidated pre-tax income was 13.9% of consolidated revenues compared to 11.7%.~~

•~~Income tax expense was $377.6 million compared to $350.5 million, and our effective tax rate was 19.6% compared to 23.9%.~~

•~~Net income attributable to D.R. Horton increased 39% to $1.5 billion compared to $1.1 billion.~~

•~~Diluted net income per common share attributable to D.R. Horton increased 42% to $4.17 compared to $2.94.~~

•~~Net cash provided by operations was $588.9 million compared to $80.7 million.~~

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RESULTS OF OPERATIONS - HOMEBUILDING

We conduct our homebuilding operations in the geographic regions, states and markets listed below, and we conduct our financial services operations in many of these markets. Our homebuilding operating divisions are aggregated into six reporting segments, also referred to as reporting regions, which comprise the markets below. Our financial statements and the notes thereto contain additional information regarding segment performance.

State

Reporting Region/Market

State

Reporting Region/Market

East Region

~~Southeast~~Midwest Region

Delaware

Central Delaware

~~Alabama~~Colorado

~~Birmingham~~Colorado Springs

Northern Delaware

~~Huntsville~~Denver

Georgia

Savannah

~~Mobile/Baldwin County~~Fort Collins

Maryland

Baltimore

Illinois

~~Montgomery~~Chicago

Suburban Washington, D.C.

Indiana

~~Tuscaloosa~~Fort Wayne

New Jersey

Northern New Jersey

~~Florida~~

~~Fort Myers/Naples~~Indianapolis

Southern New Jersey

Iowa

~~Gainesville~~Des Moines

North Carolina

Asheville

Minnesota

~~Jacksonville~~Minneapolis/St. Paul

Charlotte

Ohio

~~Lakeland~~Cincinnati

Greensboro/Winston-Salem

~~Melbourne/Vero Beach~~Columbus

Raleigh/Durham

~~Miami/Fort Lauderdale~~

Wilmington

~~Ocala~~South Central Region

Pennsylvania

Central Pennsylvania

Louisiana

Baton Rouge

Philadelphia

~~Orlando~~Lake Charles/Lafayette

South Carolina

Charleston

Oklahoma

~~Pensacola/Panama~~Oklahoma City

Columbia

Texas

~~Port St. Lucie~~Austin

Greenville/Spartanburg

~~Tampa/Sarasota~~Bryan/College Station

Hilton Head

~~Volusia County~~Corpus Christi

Myrtle Beach

~~West Palm Beach~~Dallas

Virginia

Northern Virginia

~~Georgia~~

~~Atlanta~~Fort Worth

Southern Virginia

~~Augusta~~Houston

~~Mississippi~~

~~Gulf Coast~~Killeen/Temple/Waco

~~Midwest~~Southeast Region

~~Tennessee~~

~~Chattanooga~~

~~Colorado~~

~~Denver~~

~~Knoxville~~Midland/Odessa

Alabama

Birmingham

New Braunfels/San Marcos

~~Fort Collins~~Huntsville

~~Memphis~~San Antonio

~~Illinois~~

~~Chicago~~

~~Nashville~~

~~Indiana~~

~~Fort Wayne~~Mobile/Baldwin County

~~Indianapolis~~Montgomery

Southwest Region

Tuscaloosa

Arizona

Phoenix

Florida

Fort Myers/Naples

Tucson

Gainesville

New Mexico

Albuquerque

Jacksonville

Lakeland

West Region

~~Iowa~~

~~Des Moines~~Melbourne/Vero Beach

California

Bakersfield

~~Minnesota~~

~~Minneapolis/St. Paul~~Miami/Fort Lauderdale

Bay Area

~~Ohio~~

~~Cincinnati~~Ocala

Fresno

~~Columbus~~Orlando

Los Angeles County

Pensacola/Panama City

Modesto/Merced

~~South Central Region~~Port St. Lucie

Riverside County

~~Louisiana~~

~~Baton Rouge~~Tampa/Sarasota

Sacramento

~~Lake Charles/Lafayette~~Volusia County

San Bernardino County

~~Oklahoma~~

~~Oklahoma City~~West Palm Beach

San Diego County

~~Texas~~Georgia

~~Austin~~Atlanta

Hawaii

~~Maui~~

~~Bryan/College Station~~

Oahu

~~Dallas~~Augusta

Nevada

Las Vegas

~~Fort Worth~~Mississippi

Gulf Coast

Reno

Tennessee

~~Houston~~Chattanooga

Oregon

Bend

~~Killeen/Temple/Waco~~Knoxville

Portland/Salem

~~Midland/Odessa~~Memphis

Utah

Salt Lake City

~~New Braunfels/San Marcos~~Nashville

Washington

Seattle/Tacoma/Everett/Olympia

~~San Antonio~~

Spokane

Vancouver

~~Southwest Region~~

~~Arizona~~

~~Phoenix~~

~~Tucson~~

~~New Mexico~~

~~Albuquerque~~

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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,~~December 31, 2020 and 2019.


		Net Sales Orders (1)																																Net Sales Orders (1)
		Three Months Ended June 30,																																Three Months Ended December 31,
		Net Homes Sold								Value (In millions)										Average Selling Price										Net Homes Sold						Value (In millions)	Average Selling Price
		2020	2019	% Change		2020		2019		% Change		2020		2019		% Change			2020		2019	% Change		2020		2019		% Change		2020		2019		% Change
East	East	2,803	2,073	35	%	$	837.8	$	606.0	38	%	$	298,900	$	292,300	2	%	East	2,634		1,841	43	%	$	861.6	$	546.8	58	%	$	327,100	$	297,000	10	%
Midwest	Midwest	1,374	881	56	%	483.8		298.1		62	%	352,100		338,400		4	%	Midwest	1,255		714	76	%	475.9		255.4		86	%	379,200		357,700		6	%
Southeast	Southeast	6,991	5,105	37	%	1,920.0		1,379.5		39	%	274,600		270,200		2	%	Southeast	7,007		4,374	60	%	2,082.2		1,191.8		75	%	297,200		272,500		9	%
South Central	South Central	6,644	4,475	48	%	1,693.5		1,139.7		49	%	254,900		254,700		—	%	South Central	6,690		3,775	77	%	1,806.5		964.2		87	%	270,000		255,400		6	%
Southwest	Southwest	1,017	799	27	%	285.4		217.6		31	%	280,600		272,300		3	%	Southwest	902		667	35	%	284.6		199.7		43	%	315,500		299,400		5	%
West	West	2,690	2,255	19	%	1,116.8		1,066.2		5	%	415,200		472,800		(12)	%	West	1,930		1,755	10	%	905.2		791.9		14	%	469,000		451,200		4	%
		21,519	15,588	38	%	$	6,337.3	$	4,707.1	35	%	$	294,500	$	302,000	(2)	%		20,418		13,126	56	%	$	6,416.0	$	3,949.8	62	%	$	314,200	$	300,900	4	%

		Nine Months Ended June 30,
		Net Homes Sold								Value (In millions)										Average Selling Price
		2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East		7,393	6,069	22	%	$	2,188.3	$	1,744.0	25	%	$	296,000	$	287,400	3	%
Midwest		3,514	2,449	43	%	1,245.5		856.3		45	%	354,400		349,700		1	%
Southeast		17,381	14,326	21	%	4,746.7		3,831.2		24	%	273,100		267,400		2	%
South Central		16,558	12,649	31	%	4,226.7		3,198.7		32	%	255,300		252,900		1	%
Southwest		2,626	2,126	24	%	752.8		558.7		35	%	286,700		262,800		9	%
West		7,260	5,816	25	%	3,147.9		2,685.4		17	%	433,600		461,700		(6)	%
		54,732	43,435	26	%	$	16,307.9	$	12,874.3	27	%	$	298,000	$	296,400	1	%


		Sales Order Cancellations																				Sales Order Cancellations
		Three Months Ended June 30,																				Three Months Ended December 31,
		Cancelled Sales Orders				Value (In millions)							Cancellation Rate (2)					Cancelled Sales Orders				Value (In millions)		Cancellation Rate (2)
		2020	2019	2020		2019		2020		2019				2020	2019	2020		2019		2020		2019
East	East	841	565	$	239.7	$	156.4	23	%	21	%	East		570	430	$	171.0	$	123.1	18	%	19	%
Midwest	Midwest	311	216	98.8		70.3		18	%	20	%	Midwest		248	161	92.7		51.2		17	%	18	%
Southeast	Southeast	2,005	1,446	556.3		382.3		22	%	22	%	Southeast		1,676	1,171	476.9		320.7		19	%	21	%
South Central	South Central	1,970	1,204	507.4		304.5		23	%	21	%	South Central		1,433	994	373.4		254.4		18	%	21	%
Southwest	Southwest	276	216	77.4		55.9		21	%	21	%	Southwest		206	160	59.7		44.6		19	%	19	%
West	West	565	331	243.6		155.0		17	%	13	%	West		275	291	123.9		129.9		12	%	14	%
		5,968	3,978	$	1,723.2	$	1,124.4	22	%	20	%			4,408	3,207	$	1,297.6	$	923.9	18	%	20	%

		Nine Months Ended June 30,
		Cancelled Sales Orders				Value (In millions)							Cancellation Rate (2)
		2020	2019	2020		2019		2020		2019
East		1,931	1,637	$	551.3	$	459.3	21	%	21	%
Midwest		696	485	225.7		163.6		17	%	17	%
Southeast		4,871	4,043	1,340.0		1,076.6		22	%	22	%
South Central		4,336	3,494	1,114.8		875.6		21	%	22	%
Southwest		660	736	187.8		184.9		20	%	26	%
West		1,251	965	552.3		450.2		15	%	14	%
		13,745	11,360	$	3,971.9	$	3,210.2	20	%	21	%

~~___________________________________________~~________

(1)Net sales orders represent the number and dollar value of new sales contracts executed with customers (gross sales orders), net of cancelled sales orders.

(2)Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.

~~Table of Contents~~

Net Sales Orders

The number of net sales orders increased ~~38% and 26%~~56% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, with increases in all of our regions. The value of net sales orders increased ~~35%~~62% to ~~$6.3~~$6.4 billion ~~(21,519 homes) and 27% to $16.3 billion (54,732~~(20,418 homes) for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$4.7~~$3.9 billion ~~(15,588 homes) and $12.9 billion (43,435~~(13,126 homes) in the prior year ~~periods.~~period. The average selling price of net sales orders during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 was ~~$294,500 and $298,000, respectively, down 2% and~~$314,200, up 1%4% from the prior year ~~periods.~~period.

The markets contributing most to the increases in sales volumes in our regions were as follows: the Carolina markets ~~(particularly Myrtle Beach)~~ in the East; the Denver ~~Chicago~~ and ~~Indiana~~Indianapolis markets ~~(quarter) and the Denver, Iowa and Indiana markets (nine month period)~~ in the Midwest; the Florida markets (particularly Tampa) in the Southeast; the Dallas, Houston, ~~Dallas~~Austin and ~~Fort Worth~~San Antonio markets in the South Central; the Phoenix market in the Southwest; and the ~~Portland and~~ California markets in the West.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was ~~22% and 20%~~18% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to 20% ~~and 21%~~ in the prior year ~~periods.~~period.

~~During~~The increase in our sales orders that occurred in the ~~month~~second half of ~~April~~fiscal 2020 ~~when restrictive stay~~has continued into fiscal 2021 and reflects buyer urgency due to low interest rates on mortgage loans and the limited supply of homes at ~~home orders were in place for many~~affordable price points across most of our markets, we experienced increases in sales cancellations and decreases in sales orders, and our net sales orders for the month were 1% lower than the same period a year ago. However, as some economic activity began to resume and restrictive orders began to be lifted, our weekly sales pace during May and June increased significantly, and our cancellation rate returned to normal levels.markets.

Sales Order Backlog
As of June 30,
Homes in Backlog Value (In millions) Average Selling Price
2020 2019 %
Change 2020 2019 %
Change 2020 2019 %
Change
East 3,028 2,267 34 % $ 929.3 $ 675.5 38 % $ 306,900 $ 298,000 3 %
Midwest 1,834 1,253 46 % 646.6 414.0 56 % 352,600 330,400 7 %
Southeast 6,675 5,056 32 % 1,873.7 1,409.6 33 % 280,700 278,800 1 %
South Central 7,380 5,086 45 % 1,920.0 1,313.4 46 % 260,200 258,200 1 %
Southwest 1,348 957 41 % 384.8 264.8 45 % 285,500 276,700 3 %
West 2,940 1,888 56 % 1,259.4 893.0 41 % 428,400 473,000 (9) %
23,205 16,507 41 % $ 7,013.8 $ 4,970.3 41 % $ 302,300 $ 301,100 — %

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	Sales Order Backlog
	As of December 31,
	Homes in Backlog				Value (In millions)						Average Selling Price
	2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East	3,625	1,959	85	%	$	1,194.4	$	602.5	98	%	$	329,500	$	307,600	7	%
Midwest	2,135	964	121	%	795.5		337.8		135	%	372,600		350,400		6	%
Southeast	8,967	4,420	103	%	2,684.4		1,262.0		113	%	299,400		285,500		5	%
South Central	9,059	4,161	118	%	2,441.8		1,090.2		124	%	269,500		262,000		3	%
Southwest	2,134	819	161	%	648.6		245.4		164	%	303,900		299,600		1	%
West	2,567	1,457	76	%	1,170.1		688.7		70	%	455,800		472,700		(4)	%
	28,487	13,780	107	%	$	8,934.8	$	4,226.6	111	%	$	313,600	$	306,700	2	%

Sales Order Backlog

Sales order backlog represents homes under contract but not yet closed at the end of the period. Many of the contracts in our sales order backlog are subject to contingencies, including mortgage loan approval and buyers selling their existing homes, which can result in cancellations. A portion of the contracts in backlog will not result in closings due to cancellations.

~~Table of Contents~~


		Homes Closed and Home Sales Revenue																																Homes Closed and Home Sales Revenue
		Three Months Ended June 30,																																Three Months Ended December 31,
		Homes Closed								Value (In millions)										Average Selling Price										Homes Closed						Value (In millions)	Average Selling Price
		2020	2019	% Change		2020		2019		% Change		2020		2019		% Change			2020		2019	% Change		2020		2019		% Change		2020		2019		% Change
East	East	2,500	2,356	6	%	$	735.2	$	674.7	9	%	$	294,100	$	286,400	3	%	East	2,592		1,798	44	%	$	804.6	$	520.4	55	%	$	310,400	$	289,400	7	%
Midwest	Midwest	1,053	856	23	%	372.7		301.8		23	%	353,900		352,600		—	%	Midwest	1,136		813	40	%	411.9		282.2		46	%	362,600		347,100		4	%
Southeast	Southeast	5,921	5,181	14	%	1,627.8		1,384.3		18	%	274,900		267,200		3	%	Southeast	6,296		4,231	49	%	1,776.3		1,149.3		55	%	282,100		271,600		4	%
South Central	South Central	5,397	4,635	16	%	1,375.6		1,177.8		17	%	254,900		254,100		—	%	South Central	5,669		3,780	50	%	1,473.4		958.0		54	%	259,900		253,400		3	%
Southwest	Southwest	750	855	(12)	%	213.8		228.7		(7)	%	285,100		267,500		7	%	Southwest	773		663	17	%	232.2		196.0		18	%	300,400		295,600		2	%
West	West	2,021	2,088	(3)	%	882.5		967.3		(9)	%	436,700		463,300		(6)	%	West	2,273		1,674	36	%	1,000.3		757.4		32	%	440,100		452,400		(3)	%
		17,642	15,971	10	%	$	5,207.6	$	4,734.6	10	%	$	295,200	$	296,400	—	%		18,739		12,959	45	%	$	5,698.7	$	3,863.3	48	%	$	304,100	$	298,100	2	%

		Nine Months Ended June 30,
		Homes Closed								Value (In millions)										Average Selling Price
		2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East		6,281	5,705	10	%	$	1,835.1	$	1,638.6	12	%	$	292,200	$	287,200	2	%
Midwest		2,743	2,228	23	%	963.6		793.0		22	%	351,300		355,900		(1)	%
Southeast		14,983	13,491	11	%	4,092.5		3,593.9		14	%	273,100		266,400		3	%
South Central		13,344	12,055	11	%	3,390.8		3,037.0		12	%	254,100		251,900		1	%
Southwest		2,093	2,097	—	%	609.5		545.6		12	%	291,200		260,200		12	%
West		5,696	5,375	6	%	2,542.7		2,517.7		1	%	446,400		468,400		(5)	%
		45,140	40,951	10	%	$	13,434.2	$	12,125.8	11	%	$	297,600	$	296,100	1	%

Home Sales Revenue

Revenues from home sales increased ~~10%~~48% to ~~$5.2~~$5.7 billion ~~(17,642~~(18,739 homes closed) for the three months ended ~~June 30,~~December 31, 2020 from ~~$4.7~~$3.9 billion ~~(15,971 homes closed) in the prior year period. Revenues from home sales increased 11% to $13.4 billion (45,140 homes closed) for the nine months ended June 30, 2020 from $12.1 billion (40,951~~(12,959 homes closed) in the prior year period. Home sales revenues increased in ~~most~~all of our regions primarily due to an increase in the number of homes closed.

The number of homes closed increased ~~10%~~45% in ~~both~~ the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the prior year ~~periods.~~period. The markets contributing most to the increases in closing volumes in our regions were as follows: the Carolina markets (particularly Myrtle Beach) in the East; the Denver and ~~Iowa~~Chicago markets ~~(quarter) and the Indiana and Iowa markets (nine month period)~~ in the Midwest; the Florida markets (particularly Tampa) in the Southeast; the Houston, Dallas and San Antonio markets ~~(quarter) and the Houston and Dallas markets (nine month period)~~ in the South Central; the Phoenix and Tucson markets in the Southwest; and the Las Vegas, Southern California and Seattle markets ~~(nine month period)~~ in the West. ~~The markets contributing most to the decreases in closing volumes in the Southwest during both periods and in the West during the quarter were Phoenix and Seattle, respectively.~~

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Homebuilding Operating Margin Analysis	Homebuilding Operating Margin Analysis																Homebuilding Operating Margin Analysis
		Percentages of Related Revenues														Percentages of Related Revenues
		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
Gross profit – home sales	Gross profit – home sales	21.6	%	20.3	%	21.3	%	19.9	%	Gross profit – home sales	24.1	%	21.0	%
Gross profit – land/lot sales and other	Gross profit – land/lot sales and other	29.7	%	15.6	%	29.8	%	23.6	%	Gross profit – land/lot sales and other	30.7	%	32.5	%
Inventory and land option charges	Inventory and land option charges	(0.1)	%	(0.4)	%	(0.1)	%	(0.3)	%	Inventory and land option charges	(0.1)	%	(0.1)	%
Gross profit – total homebuilding	Gross profit – total homebuilding	21.5	%	19.9	%	21.2	%	19.5	%	Gross profit – total homebuilding	24.0	%	21.0	%
Selling, general and administrative expense	Selling, general and administrative expense	7.9	%	8.1	%	8.4	%	8.8	%	Selling, general and administrative expense	7.9	%	9.2	%

Gain on sale of assets										Gain on sale of assets	(0.2)	%	—	%
Other (income) expense	Other (income) expense	—	%	(0.1)	%	(0.1)	%	(0.1)	%	Other (income) expense	—	%	(0.1)	%
Homebuilding pre-tax income	Homebuilding pre-tax income	13.6	%	11.8	%	12.9	%	10.8	%	Homebuilding pre-tax income	16.4	%	11.9	%

Home Sales Gross Profit

Gross profit from home sales increased to ~~$1.1~~$1.4 billion in the three months ended ~~June 30,~~December 31, 2020 from ~~$961.6~~$811.7 million in the prior year period and increased ~~130~~310 basis points to ~~21.6%~~24.1% as a percentage of home sales revenues. The percentage increase resulted from improvements of 120 basis points due to a decrease in the average cost of our homes closed while the average selling price remained flat, 10 basis points from a decrease in the amount of purchase accounting adjustments related to prior year acquisitions and 10 basis points due to a decrease in the amortization of capitalized interest, partially offset by a 10 basis point decrease due to increased warranty and construction defect costs.

Gross profit from home sales increased to $2.9 billion in the nine months ended June 30, 2020 from $2.4 billion in the prior year period and increased 140 basis points to 21.3% as a percentage of home sales revenues. The percentage increase resulted from improvements of 130280 basis points due to a decrease in the average cost of our homes closed while the average selling price increased slightly, 10 basis points from a decrease in the amount of purchase accounting adjustments related to prior year acquisitions, ~~and~~ 10 basis points due to a decrease in the amortization of capitalized interest ~~partially offset by a~~and 10 basis ~~point decrease~~points due to ~~increased~~a decrease in warranty and construction defect costs.

We remain focused on managing the pricing, incentives and sales pace in each of our communities ~~during this uncertain environment~~ to optimize the returns on our inventory investments and adjust to local market conditions and new home demand. These actions could cause our gross profit margins to fluctuate in future periods. If ~~a prolonged economic recession and a resulting decline in~~ new home demand ~~occur~~declines from current levels due to an economic recession, an increase in mortgage interest rates, the impact of C-19 or otherwise, we would expect our gross profit margins to decline from current levels.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were ~~$14.5~~$19.9 million and ~~$49.7~~$19.7 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ and ~~$27.5 million and $49.2 million in the comparable periods of fiscal 2019.~~ 2019, 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. We generally purchase land and lots with the intent to build and sell homes on them. However, some of the land that we purchase includes commercially zoned parcels that we may sell to commercial developers. We may also sell residential lots or land parcels to manage our supply or for other strategic reasons. As of ~~June 30,~~December 31, 2020, our homebuilding operations had ~~$28.1~~$23.8 million of land held for sale that we expect to sell in the next twelve months.

~~Table of Contents~~

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 of ~~June 30,~~December 31, 2020, we performed detailed impairment evaluations of communities and land inventories with a combined carrying value of ~~$52.1~~$33.5 million and ~~determined that no communities or land inventories were impaired. Accordingly, no~~recorded impairment charges ~~were recorded~~of $5.6 million during the three months ended ~~June 30,~~December 31, 2020 ~~compared~~ to ~~$6.8 million~~reduce the carrying value of impaired land to fair value. There were no impairment charges recorded in the prior year period. ~~During the nine months ended June 30, 2020 and 2019, impairment charges totaled $1.7 million and $18.6 million, respectively.~~

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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. If the housing market or economic conditions are adversely affected for a prolonged period due to C-19 or otherwise, we may be required to evaluate additional communities for potential impairment. These evaluations could result in additional impairment charges which could be significant.

During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were ~~$4.9~~$2.3 million and ~~$15.6~~$3.5 million, ~~respectively, compared to $12.4 million and $22.4 million in the same periods of fiscal 2019.~~respectively.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 7%26% to ~~$415.1~~$451.2 million ~~and 6% to $1.14 billion~~ in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ from ~~$387.4~~$358.4 million ~~and $1.07 billion~~ in the prior year ~~periods.~~period. SG&A expense as a percentage of homebuilding revenues was 7.9% ~~and 8.4%~~ in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~8.1% and 8.8%~~9.2% in the prior year ~~periods.~~period.

Employee compensation and related costs represented ~~77%~~79% and ~~75%~~73% of SG&A costs in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively, compared~~and 2019, respectively. These costs increased 36% to ~~73% and 72%~~$356.0 million in the three months ended December 31, 2020 from $262.0 million in the prior year ~~periods. These costs increased 13% to $320.3 million and 10% to $848.0 million in the three and nine months ended June 30, 2020, respectively.~~period. Our homebuilding operations employed ~~7,077~~7,583 and ~~6,962~~6,811 employees at ~~June 30,~~December 31, 2020 and 2019, respectively.

We attempt to control our SG&A costs while ensuring that our infrastructure adequately supports our operations; however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Interest Incurred

We capitalize interest costs incurred to inventory during active development and construction (active inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. Interest incurred by our homebuilding operations ~~decreased 13% to $22.3 million and 17% to $69.5~~was $24.4 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020, ~~respectively,~~up slightly from ~~$25.7 million and $83.3~~$24.3 million in the prior year ~~periods. The decreases were due to lower average interest rates on our homebuilding debt, as well as decreases of 1% and 8%, respectively, in our average homebuilding debt during the periods.~~period. Interest charged to cost of sales was 0.8% of total cost of sales (excluding inventory and land option charges) in both the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~compared to 0.9%~~and 2019.

Gain on Sale of Assets

During the three months ended December 31, 2020, we sold one single-family rental community representing 124 homes for $31.8 million, resulting in ~~both prior year periods.~~a gain on sale of $13.1 million in our homebuilding segment and $0.9 million in our other businesses.

Other Income

Other income, net of other expenses, included in our homebuilding operations was ~~$0.2 million and $9.7~~$1.5 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$2.5 million and $6.1~~$5.4 million in the prior year ~~periods.~~period. Other income consists of interest ~~income, rental~~ 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 Acquisition

In October 2020, we acquired the homebuilding operations of Braselton Homes for approximately $23.0 million in cash. Braselton Homes operates in Corpus Christi, Texas. The assets acquired included approximately 90 homes in inventory, 95 lots and control of approximately 840 additional lots through purchase contracts. We also acquired a sales order backlog of approximately 125 homes.

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Homebuilding Results by Reporting Region


		Three Months Ended June 30,																							Three Months Ended December 31,
		2020										2019											2020				2019
		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues			Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues
		(In millions)																							(In millions)
East	East	$	736.3	$	106.9	14.5	%	$	675.2	$	74.1	11.0	%	East	$	809.2	$	132.5	16.4	%	$	520.5	$	59.9	11.5	%
Midwest	Midwest	373.3		34.1		9.1	%	303.3		18.7		6.2	%	Midwest	413.1		49.2		11.9	%	282.6		18.6		6.6	%
Southeast	Southeast	1,629.1		233.5		14.3	%	1,388.1		168.4		12.1	%	Southeast	1,778.4		305.8		17.2	%	1,150.6		146.3		12.7	%
South Central	South Central	1,376.4		201.8		14.7	%	1,178.0		164.3		13.9	%	South Central	1,474.9		264.7		17.9	%	958.7		132.6		13.8	%
Southwest	Southwest	216.1		29.7		13.7	%	240.6		33.5		13.9	%	Southwest	232.6		38.6		16.6	%	211.0		34.5		16.4	%
West	West	890.9		103.8		11.7	%	976.9		102.8		10.5	%	West	1,010.4		144.4		14.3	%	759.6		69.7		9.2	%
		$	5,222.1	$	709.8	13.6	%	$	4,762.1	$	561.8	11.8	%		$	5,718.6	$	935.2	16.4	%	$	3,883.0	$	461.6	11.9	%

		Nine Months Ended June 30,
		2020										2019
		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues
		(In millions)
East		$	1,836.5	$	240.1	13.1	%	$	1,640.9	$	158.0	9.6	%
Midwest		964.6		76.4		7.9	%	800.5		38.8		4.8	%
Southeast		4,096.4		567.4		13.9	%	3,607.2		411.6		11.4	%
South Central		3,401.5		490.7		14.4	%	3,040.8		389.6		12.8	%
Southwest		626.8		95.0		15.2	%	557.5		69.8		12.5	%
West		2,558.1		267.3		10.4	%	2,528.1		248.8		9.8	%
		$	13,483.9	$	1,736.9	12.9	%	$	12,175.0	$	1,316.6	10.8	%

______________

(1)Expenses maintained at the corporate level consist primarily of interest and property taxes, which are capitalized and amortized to cost of sales or expensed directly, and the expenses related to operating our corporate office. 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.

East Region — Homebuilding revenues increased ~~9% and 12%~~55% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to ~~increases~~an increase in the number of homes closed in our New Jersey, Myrtle Beach, ~~Charlotte~~suburban Washington D.C. and ~~New Jersey~~Charlotte markets. The region generated pre-tax income of ~~$106.9 million and $240.1~~$132.5 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$74.1 million and $158.0~~$59.9 million in the prior year ~~periods.~~period. Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by ~~320 and 290~~360 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year periods, due to increases in the average selling price of homes closed and a decrease in the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 30 and 40 basis points in the three and nine months ended June 30, 2020, respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.

~~Table of Contents~~

~~Midwest Region~~ — Homebuilding revenues increased 23% and 20% in the three and nine months ended June 30, 2020, respectively, compared to the prior year periods, primarily due to an increase in the number of homes closed in our Denver market in both periods and our Indianapolis market in the nine month period. The region generated pre-tax income of $34.1 million and $76.4 million in the three and nine months ended June 30, 2020, respectively, compared to $18.7 million and $38.8 million in the prior year periods. Home sales gross profit percentage increased by 170 and 250 basis points in the three and nine months ended June 30, 2020, respectively, compared to the prior year periods, largely due to decreases in purchase accounting adjustments related to the fiscal 2019 acquisitions of Westport Homes and Classic Builders. As a percentage of homebuilding revenues, SG&A expenses decreased by 200 and 70 basis points in the three and nine months ended June 30, 2020, respectively, primarily due to the increase in homebuilding revenues. The decrease in the nine month period, ~~was less than the three month period primarily due to increased employee compensation in the first quarter of fiscal 2020.~~

~~Southeast Region~~ — Homebuilding revenues increased 17% and 14% in the three and nine months ended June 30, 2020, respectively, compared to the prior year periods, primarily due to increases in the number of homes closed in most of our markets. The region generated pre-tax income of $233.5 million and $567.4 million in the three and nine months ended June 30, 2020, respectively, compared to $168.4 million and $411.6 million in the prior year periods. Home sales gross profit percentage increased by 170 and 200 basis points in the three and nine months ended June 30, 2020, respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by ~~20 and 30~~170 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to the increase in homebuilding revenues.

~~South Central~~Midwest Region — Homebuilding revenues increased ~~17% and 12%~~46% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to increases in the number of homes closed in our ~~Dallas, San Antonio~~Denver, Chicago and ~~Louisiana~~Indianapolis markets. The region generated pre-tax income of ~~$201.8 million and $490.7~~$49.2 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$164.3 million and $389.6~~$18.6 million in the prior year ~~periods.~~period. Home sales gross profit percentage increased by ~~30 and 130~~360 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to ~~increases in~~ the average selling price of homes closed ~~while~~increasing by more than the average cost of those ~~homes was flat in the three month period and decreased slightly in the nine month period.~~homes. As a percentage of homebuilding revenues, SG&A expenses decreased by ~~30 and 40~~210 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 55% in the three months ended December 31, 2020 compared to the prior year period, primarily due to increases in the number of homes closed in all of our markets. The region generated pre-tax income of $305.8 million in the three months ended December 31, 2020 compared to $146.3 million in the prior year period. Home sales gross profit percentage increased by 340 basis points in the three months ended December 31, 2020 compared to the prior year period, primarily due to the average selling price of homes closed increasing while the average cost of those homes decreased slightly. As a percentage of homebuilding revenues, SG&A expenses decreased by 140 basis points in the three months ended December 31, 2020 compared to the prior year period, primarily due to the increase in homebuilding revenues.

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South Central Region — Homebuilding revenues increased 54% in the three months ended December 31, 2020 compared to the prior year period, primarily due to increases in the number of homes closed in our Houston, Dallas and San Antonio markets. The region generated pre-tax income of $264.7 million in the three months ended December 31, 2020 compared to $132.6 million in the prior year period. Home sales gross profit percentage increased by 200 basis points in the three months ended December 31, 2020 compared to the prior year period, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 120 basis points in the three months ended December 31, 2020 compared to the prior year period, primarily due to the increase in homebuilding revenues.

Southwest Region — Homebuilding revenues ~~decreased~~increased 10% ~~and increased 12%~~ in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods. The decrease in the three month~~ period, ~~was~~ primarily due to ~~a decrease~~increases in the number of homes closed in ~~our Phoenix market. The increase in the nine month period was primarily due to increases in the average selling price~~all of ~~homes closed in all~~our markets. The region generated pre-tax income of ~~$29.7 million and $95.0~~$38.6 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$33.5 million and $69.8~~$34.5 million in the prior year ~~periods.~~period. Home sales gross profit percentage increased by ~~60 and 190~~170 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to the average selling price of homes closed increasing, ~~by more than~~while the average ~~cost.~~cost of those homes decreased. As a percentage of homebuilding revenues, SG&A expenses increased by 130 basis points ~~and decreased by 40 basis points~~ in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods, primarily~~period, due to ~~the change~~an increase in ~~homebuilding revenues.~~employee compensation and related costs.

West Region — Homebuilding revenues ~~decreased 9% and~~ increased 1%33% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods. The decrease~~period, primarily due to increases in ~~three month period was due to~~the number of homes closed in our Las Vegas, Southern California and Seattle markets, partially offset by decreases in the average selling price of homes closed in many ~~markets, as well as decreases in the number of homes closed in most markets, particularly Seattle.~~markets. The region generated pre-tax income of ~~$103.8 million and $267.3~~$144.4 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~$102.8 million and $248.8~~$69.7 million in the prior year ~~periods.~~period. Home sales gross profit percentage increased by ~~50 basis points and decreased by 70~~350 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods. The increase in the three month~~ period, ~~was~~ primarily due to the average selling price of homes closed decreasing by less than the average cost of ~~the homes closed. The decrease in the nine month period was primarily due to the average selling price decreasing by more than the average cost of the homes closed.~~those homes. As a percentage of homebuilding revenues, SG&A expenses ~~increased by 40 basis points and~~ decreased by 40170 basis points in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods,~~period, primarily due to the ~~change~~increase in homebuilding revenues.

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HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY

We routinely enter into contracts to purchase land or developed residential lots at predetermined prices on a defined schedule commensurate with planned development or anticipated new home demand. At the time of purchase, the undeveloped land is generally vested with the rights to begin development or construction work, and we plan and coordinate the development of our land into residential lots for use in our homebuilding business. 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,~~December 31, 2020 and September 30, ~~2019~~2020 are summarized as follows:


		As of June 30, 2020																			As of December 31, 2020
		Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory			Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory
		(In millions)																			(In millions)
East	East	$	749.5	$	502.6	$	5.4	$	4.8	$	1,262.3	East	$	865.2	$	572.2	$	5.5	$	1.4	$	1,444.3
Midwest	Midwest	480.8		432.8		3.5		0.7		917.8		Midwest	560.9		516.5		1.8		0.5		1,079.7
Southeast	Southeast	1,546.6		1,224.9		32.1		1.5		2,805.1		Southeast	1,887.2		1,227.9		26.9		0.8		3,142.8
South Central	South Central	1,514.2		1,388.7		0.3		—		2,903.2		South Central	1,756.5		1,498.5		0.3		0.5		3,255.8
Southwest	Southwest	241.6		426.0		1.6		0.4		669.6		Southwest	304.9		542.7		1.6		—		849.2
West	West	1,229.3		873.8		5.6		20.3		2,129.0		West	1,166.4		951.2		5.7		20.3		2,143.6
Corporate and unallocated (1)	Corporate and unallocated (1)	124.0		104.8		0.6		0.4		229.8		Corporate and unallocated (1)	124.0		98.3		0.5		0.3		223.1
		$	5,886.0	$	4,953.6	$	49.1	$	28.1	$	10,916.8		$	6,665.1	$	5,407.3	$	42.3	$	23.8	$	12,138.5


		As of September 30, 2019																			As of September 30, 2020
		Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory			Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory
		(In millions)																			(In millions)
East	East	$	697.1	$	581.2	$	10.5	$	—	$	1,288.8	East	$	785.3	$	531.2	$	5.5	$	6.3	$	1,328.3
Midwest	Midwest	473.9		361.1		1.8		—		836.8		Midwest	497.0		459.0		1.8		0.7		958.5
Southeast	Southeast	1,434.7		1,299.9		31.8		1.6		2,768.0		Southeast	1,655.5		1,231.5		32.3		0.6		2,919.9
South Central	South Central	1,215.4		1,317.5		0.3		—		2,533.2		South Central	1,596.3		1,282.3		0.3		1.0		2,879.9
Southwest	Southwest	221.8		335.6		1.6		15.4		574.4		Southwest	244.2		449.7		1.6		0.3		695.8
West	West	1,089.0		950.6		13.9		2.5		2,056.0		West	1,137.3		847.1		5.7		19.0		2,009.1
Corporate and unallocated (1)	Corporate and unallocated (1)	117.1		110.2		0.8		0.3		228.4		Corporate and unallocated (1)	121.9		100.6		0.6		0.4		223.5
		$	5,249.0	$	4,956.1	$	60.7	$	19.8	$	10,285.6		$	6,037.5	$	4,901.4	$	47.8	$	28.3	$	11,015.0

__________

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

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Our homebuilding segment’s land and lot position and homes in inventory at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 are summarized as follows:

As of June 30, 2020
Land/Lots
Owned (1) Lots Controlled
Under
Land and Lot
Purchase
Contracts (2)(3) Total
Land/Lots
Owned and
Controlled Homes
in
Inventory (4)
East 8,800 41,900 50,700 4,300
Midwest 8,500 15,700 24,200 2,300
Southeast 29,600 86,300 115,900 9,700
South Central 43,100 51,900 95,000 10,600
Southwest 7,400 5,700 13,100 1,600
West 17,800 18,800 36,600 4,300
115,200 220,300 335,500 32,800
34 % 66 % 100 %


	As of December 31, 2020
	Land/Lots Owned (1)		Lots Controlled Under Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
East	11,400		57,800		69,200		5,400
Midwest	8,700		22,800		31,500		3,000
Southeast	29,100		110,300		139,400		13,200
South Central	45,400		81,500		126,900		13,500
Southwest	8,100		15,600		23,700		2,500
West	19,300		30,700		50,000		4,500
	122,000		318,700		440,700		42,100
	28	%	72	%	100	%


		As of September 30, 2019														As of September 30, 2020
		Land/Lots Owned (1)		Lots Controlled Under Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)		Land/Lots Owned (1)		Lots Controlled Under Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
East	East	11,000		30,500		41,500		3,900	East	11,300		50,500		61,800		4,900
Midwest	Midwest	8,300		10,900		19,200		2,200	Midwest	8,000		17,800		25,800		2,600
Southeast	Southeast	34,800		73,300		108,100		8,900	Southeast	28,700		95,700		124,400		11,500
South Central	South Central	41,600		51,400		93,000		7,900	South Central	40,100		65,200		105,300		12,600
Southwest	Southwest	6,700		5,800		12,500		1,300	Southwest	7,200		7,600		14,800		1,800
West	West	19,000		14,000		33,000		3,500	West	17,300		27,500		44,800		4,600
		121,400		185,900		307,300		27,700		112,600		264,300		376,900		38,000
		40	%	60	%	100	%			30	%	70	%	100	%

___________________

(1)Land/lots owned include approximately ~~36,500~~35,600 and ~~36,100~~33,800 owned lots that are fully developed and ready for home construction at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. Land/lots owned also include land held for development representing ~~1,700~~1,600 lots at both ~~June 30,~~December 31, 2020 and September 30, ~~2019.~~2020.

(2)The total remaining purchase price of lots controlled through land and lot purchase contracts at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 was ~~$8.5~~$11.9 billion and ~~$7.2~~$9.9 billion, respectively, secured by earnest money deposits of ~~$561.9~~$776.0 million and ~~$515.4~~$653.4 million, respectively. The total remaining purchase price of lots controlled through land and lot purchase contracts at ~~June 30,~~December 31, 2020 and September 30, ~~2019~~2020 included ~~$1.0~~$1.3 billion and ~~$953.8 million,~~$1.0 billion, respectively, related to lot purchase contracts with Forestar, secured by ~~$97.9~~$122.9 million and ~~$88.7~~$98.2 million, respectively, of earnest money.

(3)Lots controlled at ~~June 30,~~December 31, 2020 include approximately ~~29,600~~34,900 lots owned or controlled by Forestar, ~~14,100~~18,300 of which our homebuilding divisions have under contract to purchase and ~~15,500~~16,600 of which our homebuilding divisions have a right of first offer to purchase. Of these, approximately ~~12,500~~15,700 lots were in our Southeast region, ~~5,700~~6,000 lots were in our South Central region, ~~4,700~~5,600 lots were in our West region, ~~2,900~~3,100 lots were in our East region, ~~2,500~~2,600 lots were in our Southwest region, and ~~1,300~~1,900 lots were in our Midwest region. Lots controlled at September 30, ~~2019~~2020 included approximately ~~23,400~~30,400 lots owned or controlled by Forestar, ~~12,800~~14,000 of which our homebuilding divisions had under contract to purchase and ~~10,600~~16,400 of which our homebuilding divisions had a right of first offer to purchase.

(4)Approximately ~~12,700~~16,300 and ~~16,000~~14,900 of our homes in inventory were unsold at ~~June 30,~~December 31, 2020 and September 30, ~~2019,~~2020, respectively. At ~~June 30,~~December 31, 2020, approximately ~~2,900~~1,600 of our unsold homes were completed, of which approximately ~~400~~200 homes had been completed for more than six months. At September 30, ~~2019,~~2020, approximately ~~5,200~~1,900 of our unsold homes were completed, of which approximately ~~800~~300 homes had been completed for more than six months. Homes in inventory exclude approximately 1,900 and 1,800 model homes at ~~both June 30,~~December 31, 2020 and September 30, ~~2019.~~2020, respectively.

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RESULTS OF OPERATIONS – FORESTAR

In ~~October 2017,~~fiscal 2018, we acquired 75% of the outstanding shares of Forestar and ~~as of June 30,~~at December 31, 2020, we owned 65% of its outstanding shares. Forestar is a publicly traded residential lot development company with operations in 51 markets across 2221 states as of ~~June 30,~~December 31, 2020. Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance. (See Note B for additional Forestar segment ~~information and purchase accounting adjustments.~~information.)

Results of operations for the Forestar segment for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 were as follows.


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		(In millions)														(In millions)
Residential land and lot sales	Residential land and lot sales	$	177.8	$	87.6	$	581.4	$	171.6	Residential land and lot sales	$	307.0	$	247.1
Commercial tract sales		—		—		2.5		18.5
Other	Other	0.1		0.6		0.4		1.9		Other	0.1		0.1
Total revenues	Total revenues	$	177.9	$	88.2	$	584.3	$	192.0	Total revenues	$	307.1	$	247.2
Cost of sales	Cost of sales	157.1		75.3		510.3		149.6		Cost of sales	262.9		216.6
Selling, general and administrative expense	Selling, general and administrative expense	11.2		7.9		32.8		19.8		Selling, general and administrative expense	15.5		10.5
Gain on sale of assets		—		(1.5)		(0.1)		(2.4)
Loss on sale of assets										Loss on sale of assets	—		0.1
Other (income) expense	Other (income) expense	(0.7)		(1.9)		(4.8)		(4.6)		Other (income) expense	(0.5)		(2.2)
Income before income taxes	Income before income taxes	$	10.3	$	8.4	$	46.1	$	29.6	Income before income taxes	$	29.2	$	22.2

At ~~June 30,~~December 31, 2020, Forestar owned directly or controlled through land and lot purchase contracts approximately ~~50,700~~77,500 residential lots, of which approximately ~~6,000~~4,900 are fully developed. Approximately ~~29,600~~34,900 of these lots are under contract to sell to D.R. Horton or subject to a right of first offer under the master supply agreement with D.R. Horton. Approximately ~~200~~600 of these lots are under contract to sell to other builders.

Residential land and lot sales primarily consist of the sale of single-family lots to local, regional and national homebuilders. During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019, Forestar’s land and lot sales, including the portion sold to D.R. Horton and the revenues generated from those sales, were as follows.


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
		($ in millions)														($ in millions)
Total residential single-family lots sold	Total residential single-family lots sold	2,023		1,158		6,396		2,224		Total residential single-family lots sold	3,567		2,422
Residential single-family lots sold to D.R. Horton	Residential single-family lots sold to D.R. Horton	1,991		995		6,287		1,903		Residential single-family lots sold to D.R. Horton	3,389		2,390
Residential lot sales revenues from sales to D.R. Horton	Residential lot sales revenues from sales to D.R. Horton	$	162.1	$	73.2	$	528.0	$	141.8	Residential lot sales revenues from sales to D.R. Horton	$	294.2	$	214.0
Residential tract acres sold to D.R. Horton	Residential tract acres sold to D.R. Horton	30		—		66		—		Residential tract acres sold to D.R. Horton	—		36
Residential land sales revenues from sales to D.R. Horton	Residential land sales revenues from sales to D.R. Horton	$	13.4	$	—	$	20.6	$	—	Residential land sales revenues from sales to D.R. Horton	$	—	$	7.2

SG&A expense for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 includes charges of ~~$1.2~~$1.1 million and ~~$3.8~~$1.3 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 $0.5 million and $1.6 million, respectively, in the same periods of fiscal 2019.~~

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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,~~December 31, 2020 and 2019.


		Three Months Ended June 30,										Nine Months Ended June 30,									Three Months Ended December 31,
		2020		2019		% Change		2020		2019		% Change			2020		2019		% Change
Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	12,487		9,235		35	%	30,628		22,997		33	%	Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	12,722		8,401		51	%
Number of homes closed by D.R. Horton	Number of homes closed by D.R. Horton	17,642		15,971		10	%	45,140		40,951		10	%	Number of homes closed by D.R. Horton	18,739		12,959		45	%
Percentage of D.R. Horton homes financed by DHI Mortgage	Percentage of D.R. Horton homes financed by DHI Mortgage	71	%	58	%			68	%	56	%			Percentage of D.R. Horton homes financed by DHI Mortgage	68	%	65	%
Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	12,511		9,264		35	%	30,745		23,061		33	%	Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	12,738		8,442		51	%
Total number of loans originated or brokered by DHI Mortgage	Total number of loans originated or brokered by DHI Mortgage	12,920		9,451		37	%	31,672		23,511		35	%	Total number of loans originated or brokered by DHI Mortgage	13,073		8,723		50	%
Captive business percentage	Captive business percentage	97	%	98	%			97	%	98	%			Captive business percentage	97	%	97	%
Loans sold by DHI Mortgage to third parties	Loans sold by DHI Mortgage to third parties	12,661		8,901		42	%	30,180		22,897		32	%	Loans sold by DHI Mortgage to third parties	13,458		8,745		54	%


		Three Months Ended June 30,										Nine Months Ended June 30,									Three Months Ended December 31,
		2020		2019		% Change		2020		2019		% Change			2020		2019		% Change
		(In millions)																				(In millions)
Loan origination fees		$	0.8	$	3.5	(77)	%	$	2.2	$	10.2	(78)	%
Sale of servicing rights and gains from sale of mortgage loans		116.7		85.4		37	%	263.7		218.3		21	%
Other revenues		10.2		6.6		55	%	23.8		16.3		46	%
Loan origination and other fees														Loan origination and other fees	$	11.1	$	7.5	48	%
Gains on sale of mortgage loans and mortgage servicing rights														Gains on sale of mortgage loans and mortgage servicing rights	138.9		73.6		89	%
Servicing income														Servicing income	2.4		—		—	%
Total mortgage operations revenues	Total mortgage operations revenues	127.7		95.5		34	%	289.7		244.8		18	%	Total mortgage operations revenues	152.4		81.1		88	%
Title policy premiums	Title policy premiums	28.9		24.1		20	%	74.3		61.6		21	%	Title policy premiums	34.8		21.8		60	%
Total revenues	Total revenues	156.6		119.6		31	%	364.0		306.4		19	%	Total revenues	187.2		102.9		82	%
General and administrative expense	General and administrative expense	93.9		76.4		23	%	257.7		213.4		21	%	General and administrative expense	109.5		77.9		41	%
Other (income) expense	Other (income) expense	(6.1)		(4.9)		24	%	(17.7)		(12.6)		40	%	Other (income) expense	(6.4)		(5.5)		16	%
Financial services pre-tax income	Financial services pre-tax income	$	68.8	$	48.1	43	%	$	124.0	$	105.6	17	%	Financial services pre-tax income	$	84.1	$	30.5	176	%

Financial Services Operating Margin Analysis


		Percentages of Financial Services Revenues														Percentages of Financial Services Revenues
		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended December 31,
		2020		2019		2020		2019			2020		2019
General and administrative expense	General and administrative expense	60.0	%	63.9	%	70.8	%	69.6	%	General and administrative expense	58.5	%	75.7	%
Other (income) expense	Other (income) expense	(3.9)	%	(4.1)	%	(4.9)	%	(4.1)	%	Other (income) expense	(3.4)	%	(5.3)	%
Financial services pre-tax income	Financial services pre-tax income	43.9	%	40.2	%	34.1	%	34.5	%	Financial services pre-tax income	44.9	%	29.6	%

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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,~~December 31, 2020, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased ~~35% and 33%, respectively,~~51% from the prior year period, due to ~~increases~~the 45% increase in the number of homes closed by our homebuilding operations, as well as a 3% increase in the percentage of homes closed for which DHI Mortgage handled ~~the~~our homebuyers’ financing, as well as increases in the number of homes closed by our homebuilding operations of 10% in both periods. The percentages of homes closed for which DHI Mortgage handled the homebuyers’ financing were 71% and 68% in the three and nine months ended June 30, 2020, respectively, compared to 58% and 56% in the prior year periods. Increases in these percentages were primarily due to the Company’s program to offer below market interest rates to D.R. Horton homebuyers, expanded coverage in certain markets and increased efficiencies resulting from technology advances.financing.

Homes closed by our homebuilding operations constituted 97% of DHI Mortgage loan originations in ~~the three and nine months ended June 30, 2020 compared to 98% in the prior year~~both periods. These percentages reflect DHI Mortgage’s consistent focus on the captive business provided by our homebuilding operations.

The number of loans sold increased ~~42% and 32%~~54% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to the prior year ~~periods.~~period. Virtually all of the mortgage loans held for sale on ~~June 30,~~December 31, 2020 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). ~~Approximately 93%~~During the three months ended December 31, 2020, approximately 66% of ~~the~~our mortgage loans were sold directly to Fannie Mae or into securities backed by ~~DHI Mortgage during the nine months ended June 30, 2020~~Ginnie Mae and 27% were sold to ~~four~~two other major financial entities. Changes in market conditions could result in a greater concentration of our mortgage sales in future periods to fewer financial entities ~~of which one entity purchased 36%.~~ and directly to Fannie Mae or Ginnie Mae, and we may need to make other adjustments to our mortgage operations.

Due to the disruption in the secondary mortgage markets beginning in late March 2020 caused by C-19 and the uncertainty of the impact of the CARES Act, many financial entities began offering lower pricing and limiting their purchases of our mortgages and servicing rights. WeAs a result of the rapid decline in servicing values at the end of March, we began retaining the servicing rights on ~~some~~a portion of our loan ~~originations during~~originations. Servicing values have since improved, and we sold a portion of our retained mortgage servicing rights in the three months ended ~~June 30,~~December 31, 2020. ~~Continued uncertainty could result in a greater concentration~~We expect to continue retaining some servicing rights prior to selling them to third parties, typically within six months of our mortgage sales in future periods to fewer financial entities and directly to Fannie Mae or Ginnie Mae, and we may need to make other adjustments to our mortgage operations to adapt to changes in market conditions.loan origination.

Financial Services Revenues and Expenses

Revenues from our mortgage operations increased ~~34%~~88% to ~~$127.7 million and 18% to $289.7~~$152.4 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ from ~~$95.5 million and $244.8~~$81.1 million in the prior year ~~periods, while~~period, primarily due to a 50% increase in loan originations and a higher net gain achieved on the ~~number~~sale of loan originations ~~increased 37% and 35% over those same periods. Revenues increased at a lower rate than origination volume due to lower pricing and resulting net gains on loan originations due to disruption~~ in the secondary ~~mortgage market caused by C-19 and~~market. Revenues from our title operations increased 60% to $34.8 million in the ~~uncertainty of the impact of the CARES Act, which included changes to current forbearance options for government-backed loans designed to keep homeowners~~three months ended December 31, 2020 from $21.8 million in their homes. Due to the uncertainty surrounding these forbearance options, servicing values declined rapidly at the end of March. The significant decline in servicing values resulted in lower net gains on loan originations during the current year periods compared to the prior year ~~periods even as loan originations increased 37%.~~period, primarily due to a 50% increase in escrow closings.

General and administrative (G&A) expense related to our financial services operations increased ~~23%~~41% to ~~$93.9 million and 21% to $257.7~~$109.5 million in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ from ~~$76.4 million and $213.4~~$77.9 million in the prior year ~~periods.~~period. The ~~increases were~~increase was primarily due to ~~increases~~an increase in employee related costs to support a higher volume of transactions. Our financial services operations employed ~~1,979~~2,403 and ~~1,938~~1,882 employees at ~~June 30,~~December 31, 2020 and 2019, respectively.

As a percentage of financial services revenues, G&A expense was ~~60.0% and 70.8%~~58.5% in the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~63.9% and 69.6%~~75.7% in the prior year ~~periods. Fluctuations~~period. Our significant increase in loan volume resulted in better G&A leverage in the current year period. However, 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.

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

As a result of the revenue increases from higher volumes of mortgage originations and escrow closings and better leverage of our G&A expenses, pre-tax income from our financial services operations increased 176% to $84.1 million in the three months ended December 31, 2020 from $30.5 million in the prior year period.

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RESULTS OF OPERATIONS - OTHER BUSINESSES

The combined pre-tax ~~loss~~income of all of our subsidiaries engaged in other business activities was ~~$0.6~~$2.2 million in the three months ended ~~June 30, 2020 and the combined pre-tax income was $56.9 million in the nine months ended June 30,~~December 31, 2020 compared to ~~pre-tax income of $24.1~~$29.6 million ~~and $52.6 million, respectively,~~ in the prior year ~~periods.~~period. Income generated by our other businesses can vary significantly based on the timing of multi-family rental property sales. There were no sales of multi-family rental properties ~~of which there were none~~ during the current ~~quarter.~~year period. In the prior year period, one property was sold for $61.5 million with a gain on sale of $31.2 million.

~~Through DHI Communities, a 100% owned subsidiary, we~~Our multi-family rental operations develop, construct, lease and own multi-family residential properties that produce rental income. ~~DHI Communities is~~We primarily ~~focused~~focus on constructing garden style multi-family ~~products,~~communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After ~~DHI Communities has completed~~we complete construction and ~~achieved~~achieve a stabilized level of leased occupancy, ~~rate,~~ the property is typically marketed for sale. WeAt December 31, 2020, we had four multi-family rental projects under active construction and ~~one project~~four projects that ~~was~~were substantially ~~complete at June 30, 2020. DHI Communities sold two~~complete. These eight projects represent 2,325 multi-family ~~rental properties during the current fiscal year, one in November 2019~~units, including 1,015 units under active construction and ~~another in February 2020, for a total of $128.5 million and recorded gains on sale totaling $59.4 million.~~

1,310 completed units.

RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes

Pre-tax income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 was ~~$782.4 million and $1.9~~$1.0 billion ~~respectively,~~ compared to ~~$626.7~~$523.3 million ~~and $1.5 billion~~ in the prior year ~~periods.~~period. The ~~increases were~~increase was primarily due to ~~increases~~an increase in pre-tax income generated by our homebuilding operations as a result of higher revenues from increased home closings and an increase in home sales gross margin.

Income Taxes

Our income tax expense for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 was ~~$149.5~~$239.1 million and ~~$377.6~~$90.8 million, ~~respectively, compared to $153.1 million and $350.5 million in the prior year periods.~~respectively. Our effective tax rate was ~~19.1% and 19.6%~~23.1% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 ~~respectively,~~ compared to ~~24.4% and 23.9%~~17.4% in the prior year periods. The effective tax rate for the three and nine months ended June 30, 2020 includes a tax benefit of $38.1 million and $77.6 million, respectively, from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). The Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020.period. The effective tax rates for ~~all~~both periods include an expense for state income taxes ~~reduced by~~and tax benefits related to stock-based ~~compensation.~~compensation and the federal energy efficient homes tax credit. For the three months ended December 31, 2019, the retroactive reinstatement of the federal energy efficient homes tax credit for homes closed from January 1, 2018 to September 30, 2019 reduced our effective tax rate by 5.6%.

Our deferred tax assets, net of deferred tax liabilities, were ~~$172.2~~$149.5 million at ~~June 30,~~December 31, 2020 compared to ~~$181.8~~$152.4 million at September 30, ~~2019.~~2020. We have a valuation allowance of ~~$13.6~~$7.5 million at ~~June~~December 31, 2020 and September 30, 2020 ~~and $18.7 million at September 30, 2019~~ related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not 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 carryforwards. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on our consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of our deferred tax assets.

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CAPITAL RESOURCES AND LIQUIDITY

We have historically funded our operations with cash flows from operating activities, borrowings under bank credit facilities and the issuance of new debt securities. Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to ~~the recent sudden, significant~~ changes in economic and market conditions. We remain cautious as to the ongoing impact of C-19 on the U.S. economy and will adjust our strategy as appropriate should market conditions ~~and~~change due to the ~~housing~~pandemic or otherwise.

In the current market, ~~across the United States. Currently,~~ we are ~~managing~~increasing our ~~homes under construction~~investments in homebuilding inventories and ~~land acquisition~~single-family and ~~land development activities~~multi-family rental properties to expand our operations and grow our revenues and profitability, as well as considering opportunistic strategic investments as they arise. We are also maintaining higher homebuilding cash balances than in prior years to support the increased scale and level of activity in our business and to provide flexibility to adjust to ~~the impact of the C-19 pandemic on our business across our markets.~~changing conditions and opportunities.

At ~~June 30,~~December 31, 2020, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was ~~28.0%~~25.3% compared to ~~25.3%~~26.6% at September 30, ~~2019~~2020 and ~~26.4%~~27.0% at ~~June 30,~~December 31, 2019. Our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was ~~18.4%~~17.3% compared to ~~17.0%~~17.5% at September 30, ~~2019~~2020 and ~~18.5%~~19.5% at ~~June 30,~~December 31, 2019. Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 35%, and we expect it to remain significantly lower than 35% throughout fiscal ~~2020.~~2021. 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 and our financial services business because they are separately capitalized and not guaranteed by our parent company or any of our homebuilding entities.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, pay dividends, repurchase our common stock and maintain sufficient cash levels to support our other ~~general corporate and~~ operational needs, and we regularly evaluate our opportunities to raise additional capital. D.R. Horton has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in August 2018, registering debt and equity securities that may be issued from time to time in amounts to be determined. Forestar also has an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity ~~securities,~~securities. At December 31, 2020, $394.3 million remained available under Forestar’s shelf registration statement, $100 million of which ~~$394.3 million remains available.~~is reserved for sales under its at-the-market equity offering 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. However, due to the current economic uncertainties related to C-19, we may be limited in accessing the capital markets or obtaining additional bank financing or the cost of accessing this financing could become more expensive for funding our longer-term capital needs.

Capital Resources - Homebuilding

Cash and Cash Equivalents — At ~~June 30,~~December 31, 2020, cash and cash equivalents of our homebuilding segment totaled ~~$1.9~~$2.1 billion.

Bank Credit Facilities — We have a $1.59 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment. Letters of credit issued under the facility reduce the available borrowing capacity. The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or London Interbank Offered Rate (LIBOR) plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is October 2, 2024. ~~Borrowings and repayments under the facility were $1.06 billion each during the nine months ended June 30, 2020.~~ At ~~June 30,~~December 31, 2020, there were no borrowings outstanding and ~~$127.8~~$151.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately ~~$1.46~~$1.44 billion.

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In May 2020, we entered into a credit agreement providing for a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments. The interest rate on borrowings under the 364-day revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is May 27, 2021. There were no borrowings outstanding under the facility ~~for the period from its inception through June 30,~~at December 31, 2020.

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Our homebuilding revolving credit facilities impose 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. Both facilities include substantially the same affirmative and negative covenants, events of default and financial covenants. These covenants are measured as defined in the credit agreements governing the facilities 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 facilities or cause any outstanding borrowings to become due and payable prior to maturity. The credit agreements governing the facilities impose restrictions on the creation of secured debt and liens. At ~~June 30,~~December 31, 2020, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facilities.

Public Unsecured Debt — We have ~~$2.45~~$2.55 billion principal amount of homebuilding senior notes outstanding as of ~~June 30,~~December 31, 2020 that mature from ~~December 2020~~September 2022 through October ~~2025.~~2027. In October ~~2019,~~2020, we issued $500 million principal amount of ~~2.5%~~1.4% senior notes due October 15, ~~2024,~~2027, with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is ~~2.7%~~1.6%. In ~~February~~December 2020, we repaid ~~$500~~$400 million principal amount of our ~~4.0%~~2.55% senior notes at maturity. In May 2020, we issued $500 million principal amount of 2.6% senior notes due October 15, 2025 with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 2.8%. The indentures governing our senior notes impose restrictions on the creation of secured debt and liens. At ~~June 30,~~December 31, 2020, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

Repurchases of Common Stock — We repurchased ~~7.0~~1.0 million shares of our common stock for ~~$360.4~~$69.8 million during ~~the nine months ended June 30, 2020, none of which were purchased in~~ the three months ended ~~June 30,~~December 31, 2020.

Debt and Equity Repurchase Authorizations — Effective July 30, 2019, our Board of Directors authorized the repurchase of up to $500 million of debt securities and $1.0 billion of our common stock. At ~~June 30,~~December 31, 2020, the full amount of the debt repurchase authorization was remaining, and ~~$535.3~~$465.5 million of the equity repurchase authorization was remaining. These authorizations have no expiration date.

Capital Resources - Forestar

Forestar’s ability to achieve its long-term growth objectives will depend on its ability to obtain financing in sufficient capacities. 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.

Cash and Cash Equivalents — At ~~June 30,~~December 31, 2020, Forestar had cash and cash equivalents of ~~$355.6~~$237.4 million.

Bank Credit Facility — Forestar has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments. 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 revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on Forestar’s book value of its real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At ~~June 30,~~December 31, 2020, there were no borrowings outstanding and ~~$31.6~~$40.5 million of letters of credit issued under the revolving credit facility, resulting in available capacity of ~~$348.4~~$339.5 million. The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

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Unsecured Debt — ~~In February 2020,~~ Forestar ~~issued $300~~has $650 million principal amount of ~~5.0%~~ senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The notes ~~are due~~mature from April 2024 through March 1, 2028, with interest payable ~~semiannually,~~semi-annually, and represent unsecured obligations of Forestar. The annual effective interest rate of these notes after giving effect to the amortization of financing costs is 5.2%. These notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreement. Forestar also has $350 million principal amount of 8.0% senior notes that mature April 15, 2024. In March 2020, Forestar repaid $118.9 million principal amount of its 3.75% convertible senior notes in cash at maturity.

Forestar’s revolving credit facility and its senior notes are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee our homebuilding debt. At ~~June 30,~~December 31, 2020, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

Debt Repurchase Authorization — Effective April 30, 2020, Forestar’s Board of Directors authorized the repurchase of up to $30 million of Forestar’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at December 31, 2020.

Capital Resources - Financial Services

Cash and Cash Equivalents — At ~~June 30,~~December 31, 2020, cash and cash equivalents of our financial services operations totaled ~~$75.1~~$65.3 million.

Mortgage Repurchase Facility — Our mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties upon receipt of funds from the counterparties. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility. ~~In May 2020, the mortgage repurchase facility was amended to increase its~~The total capacity toof the facility is $1.35 billion; however, the capacity ~~increases~~increased, without requiring additional commitments, to $1.575 billion for approximately 45 days around September 30, 2020 and increased again for approximately 30 days ~~at the end of the third quarter of fiscal 2020 and first quarter of fiscal 2021 and for approximately 45 days at the end of fiscal~~around December 31, 2020. The capacity of the facility can also be increased to $1.8 billion, subject to the availability of additional commitments. The maturity date of the facility is February 19, 2021. We are currently in discussions with our lenders and expect to renew and extend the facility on similar terms prior to its maturity date.

The mortgage repurchase facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee our homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants are measured and reported to the lenders monthly. At ~~June 30,~~December 31, 2020, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.

In the past, DHI Mortgage has been able to renew or extend its mortgage credit 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. The liquidity of our financial services business depends upon its continued ability to renew and extend the mortgage repurchase facility or to obtain other additional financing in sufficient capacities.

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Operating Cash Flow Activities

In the ~~nine~~three months ended ~~June 30,~~December 31, 2020, net cash ~~provided by~~used in operating activities was ~~$588.9~~$252.1 million compared to ~~$80.7~~$113.8 million in the prior year period. Cash ~~provided by~~used in operating activities in the current year period primarily consisted of ~~$1.2 billion of cash provided by our homebuilding segment, partially offset by $347.7~~$269.2 million and ~~$205.7~~$158.7 million of cash used in our ~~financial services~~homebuilding and Forestar segments, ~~respectively.~~respectively, partially offset by $173.1 million of cash provided by our financial services segment.

Cash used to increase construction in progress and finished home inventory was ~~$602.3~~$591.2 million in the current year period compared to ~~$393.0~~$334.8 million in the prior year period. In both periods, the expenditures were made to support increased sales and closing volumes. Cash used to increase residential land and lots in the current year period was ~~$361.9~~$716.8 million compared to ~~$606.2~~$373.1 million in the prior year period. Of these amounts, ~~$259.8~~$218.5 million and ~~$531.5~~$38.9 million, respectively, related to Forestar. The most significant source of cash provided by operating activities in both periods was net income.

Investing Cash Flow Activities

In the ~~nine~~three months ended ~~June 30,~~December 31, 2020, net cash used in investing activities was ~~$100.4~~$91.4 million compared to ~~$326.3~~$17.8 million in the prior year period. In the current year period, uses of cash included expenditures related to our rental ~~properties~~operations totaling ~~$153.6~~$86.2 million, an acquisition of the homebuilding operations of Braselton Homes for $23.0 million and purchases of property and equipment totaling ~~$66.8~~$16.3 million, partially offset by proceeds from the sale of a single-family rental community for $31.8 million. In the prior year period, uses of cash included expenditures related to our rental operations totaling $59.6 million and purchases of property and equipment totaling $21.6 million, partially offset by proceeds from the sale of assets primarily consisting of ~~$128.5~~$61.5 million related to the sale of ~~two~~a multi-family rental properties. In the prior year period, the most significant uses of cash were the purchases of the homebuilding operations of Westport Homes, Classic Builders and Terramor Homes. Proceeds from the sale of assets in the prior year period included $133.4 million related to the sale of two multi-family rental properties.property.

Financing Cash Flow Activities

We expect the short-term financing needs of our operations will be funded with existing cash, cash generated from operations and borrowings under our credit facilities. Long-term financing needs for our homebuilding and Forestar operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets.

During the ~~nine~~three months ended ~~June 30,~~December 31, 2020, net cash used in financing activities was $221.7 million, consisting primarily of repayment of $400 million principal amount of our 2.55% homebuilding senior notes at maturity, net payments of $163.5 million on our mortgage repurchase facility, payment of cash dividends totaling $72.9 million and cash used to repurchase shares of our common stock of $53.8 million. These uses of cash were partially offset by note proceeds from our issuance of $500 million principal amount of 1.4% homebuilding senior notes.

During the three months ended December 31, 2019, net cash provided by financing activities was ~~$370.2~~$213.5 million, consisting primarily of note proceeds ~~of $1.06 billion~~ from ~~draws on our homebuilding revolving credit facility,~~ our issuance of $500 million principal amount of 2.5% homebuilding senior notes, our issuance of $500 million principal amount of 2.6% homebuilding senior notes, Forestar’s issuance of $300 million principal amount of 5.0% senior notes and net advances of $284.0 million on our mortgage repurchase facility. Note proceeds were partially offset by repayment of amounts drawn on our homebuilding revolving credit facility totaling $1.06 billion, repayment of $500 million principal amount of our 4.0% senior notes at maturity, Forestar’s repayment of $118.9 million principal amount of its 3.75% convertible senior notes at maturity, cash used to repurchase ~~7.0 million~~ shares of our common stock ~~for $360.4~~of $163.1 million, ~~and~~ payment of cash dividends totaling ~~$192.3 million.~~

During the nine months ended June 30, 2019, net cash used in financing activities was $375.1 million, consisting primarily of repayment of amounts drawn on our homebuilding and Forestar revolving credit facilities totaling $2.0 billion, repayment of $500 million principal amount of our 3.75% homebuilding senior notes at maturity, cash used to repurchase 9.4 million shares of our common stock for $361.5$64.6 million and ~~payment~~net payments of cash dividends totaling $167.9 million. These uses of cash were partially offset by note proceeds of $2.2 billion from draws on our homebuilding and Forestar revolving credit facilities, Forestar’s issuance of $350 million principal amount of 8.0% senior notes and net advances of $158.8$38.6 million on our mortgage repurchase facility.

During ~~each of~~ the ~~first~~ three quarters of fiscal 2020, our Board of Directors approved and paid quarterly cash dividends of $0.175 per common share, the most recent of which was paid on May 21, 2020 to stockholders of record on May 11, 2020. In Julymonths ended December 31, 2020, our Board of Directors approved a quarterly cash dividend of ~~$0.175~~$0.20 per common share, ~~payable~~which was paid on ~~August 24,~~December 14, 2020 to stockholders of record on ~~August 12,~~December 4, 2020. In January 2021, our Board of Directors approved a quarterly cash dividend of $0.20 per common share, payable on February 25, 2021 to stockholders of record on February 17, 2021. Cash dividends of ~~$0.15~~$0.175 per common share were approved and paid in each quarter of fiscal ~~2019.~~2020. 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.

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CONTRACTUAL CASH OBLIGATIONS, COMMERCIAL COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS

Our primary contractual cash obligations are payments under our debt agreements and lease payments under operating leases. We expect to fund our contractual obligations in the ordinary course of business through a combination of our existing cash resources, cash flows generated from profits, our credit facilities or other bank financing, and the issuance of new debt or equity securities through the public capital markets as market conditions may permit.

At ~~June 30,~~December 31, 2020, we had outstanding letters of credit of ~~$159.4~~$192.1 million and surety bonds of ~~$1.7~~$1.9 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. When we complete our performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations. We have no material third-party guarantees.

Our mortgage subsidiary enters into various commitments related to the lending activities of our mortgage operations. Further discussion of these commitments is provided in Item 3 “Quantitative and Qualitative Disclosures ~~about~~About Market Risk” under Part I of this quarterly report on Form 10-Q.

We enter into land and lot purchase contracts to acquire land or lots for the construction of homes. Lot purchase contracts enable us to control significant lot positions with limited capital investment. Among our homebuilding land and lot purchase contracts at ~~June 30,~~December 31, 2020, there were a limited number of contracts ~~representing $50.8~~with $73.5 million of remaining purchase price subject to specific performance provisions that may require us to purchase the land or lots upon the land sellers meeting their respective contractual obligations. Of this amount, ~~$11.5~~$41.5 million related to contracts between our homebuilding segment and Forestar. Further information about our land purchase contracts is provided in the “Homebuilding Inventories, Land and Lot Position and Homes in Inventory” section included herein.

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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of ~~June 30,~~December 31, 2020, D.R. Horton, Inc. had outstanding ~~$2.45~~$2.55 billion principal amount of homebuilding senior notes due through October ~~2025~~2027 and 0 amounts outstanding on its homebuilding revolving credit facilities.

All of the homebuilding senior notes and the homebuilding revolving credit facilities are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of D.R. Horton, Inc. (Guarantors or Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by D.R. Horton, Inc. Our subsidiaries associated with the Forestar lot development operation, financial services operations, multi-family residential construction and certain other subsidiaries do not guarantee the homebuilding senior notes or the homebuilding revolving credit facilities (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. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt. The guarantees will be structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries of the Guarantors.

The guarantees by a Guarantor Subsidiary will be automatically and unconditionally released and discharged upon: (1) the sale or other disposition of its common stock whereby it is no longer a subsidiary of ours; (2) the sale or other disposition of all or substantially all of its assets (other than to us or another Guarantor); (3) its merger or consolidation with an entity other than us or another Guarantor; or (4) its ceasing to guarantee any of our publicly traded debt securities and ceasing to guarantee any of our obligations under our homebuilding revolving credit facility.

The following tables present summarized financial information for D.R. Horton, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among D.R. Horton, Inc. and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from the Non-Guarantor Subsidiaries.


D.R. Horton, Inc. and Guarantor Subsidiaries	D.R. Horton, Inc. and Guarantor Subsidiaries									D.R. Horton, Inc. and Guarantor Subsidiaries

Summarized Balance Sheet Data	Summarized Balance Sheet Data	June 30, 2020		September 30, 2019		Summarized Balance Sheet Data	December 31, 2020		September 30, 2020
		(In millions)							(In millions)
Assets	Assets					Assets
Cash	Cash	$	1,842.4	$	992.9	Cash	$	2,044.8	$	2,498.5
Inventories	Inventories	10,792.7		10,056.8		Inventories	12,044.0		10,921.8
Amount due from Non-Guarantor Subsidiaries	Amount due from Non-Guarantor Subsidiaries	487.5		473.2		Amount due from Non-Guarantor Subsidiaries	572.7		524.6
Total assets	Total assets	14,571.0		12,874.1		Total assets	16,374.6		15,503.9
Liabilities & Stockholders’ Equity	Liabilities & Stockholders’ Equity					Liabilities & Stockholders’ Equity
Notes payable	Notes payable	$	2,490.3	$	1,970.1	Notes payable	$	2,606.2	$	2,514.4
Total liabilities	Total liabilities	4,568.8		3,657.5		Total liabilities	5,053.6		4,746.9
Stockholders’ equity	Stockholders’ equity	10,002.2		9,216.6		Stockholders’ equity	11,321.0		10,757.0

Summarized Statement of Operations Data	Summarized Statement of Operations Data	Nine Months Ended June 30, 2020		Fiscal Year Ended September 30, 2019		Summarized Statement of Operations Data	Three Months Ended December 31, 2020		Fiscal Year Ended September 30, 2020
		(In millions)							(In millions)
Revenues	Revenues	$	13,489.2	$	17,023.0	Revenues	$	5,714.2	$	19,630.0
Cost of sales	Cost of sales	10,626.9		13,651.8		Cost of sales	4,343.9		15,379.2
Selling, general and administrative expense	Selling, general and administrative expense	1,129.9		1,476.2		Selling, general and administrative expense	435.9		1,584.4
Income before income taxes	Income before income taxes	1,739.4		1,903.5		Income before income taxes	926.7		2,666.4
Net income	Net income	1,403.2		1,447.1		Net income	713.0		2,134.7

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A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that:

• (i) such guarantee was incurred with fraudulent intent; or

• (ii) such Guarantor did not receive fair consideration or reasonably equivalent value for issuing its ~~guarantee;~~guarantee and

•was insolvent at the time of the ~~guarantee;~~

•guarantee, was rendered insolvent by reason of the ~~guarantee;~~

•guarantee, was engaged in a business or transaction for which its assets constituted unreasonably small capital to carry on its ~~business;~~business, or

•intended to incur, or believed that it would incur, debt beyond its ability to pay such debt as it matured.

The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. Generally, however, a company would be considered insolvent for purposes of the foregoing ~~if:~~

•if the sum of the company’s debts, including contingent, unliquidated and unmatured liabilities, is greater than all of such company’s property at a fair ~~valuation;~~valuation, or

• if the present fair saleable value of the company’s assets is less than the amount that will be required to pay the probable liability on its existing debts as they become absolute and matured.

The indentures governing our homebuilding senior notes contain a “savings clause,” which limits the liability of each Guarantor on its guarantee to the maximum amount that such Guarantor can incur without risk that its guarantee will be subject to avoidance as a fraudulent transfer. This provision may not be effective to protect such guarantees from fraudulent transfer challenges or, if it does, it may reduce such Guarantor’s obligation such that the remaining amount due and collectible under the guarantees would not suffice, if necessary, to pay the notes in full when due.

On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

~~Table of Contents~~

CRITICAL ACCOUNTING POLICIES

As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, ~~2019,~~2020, our most critical accounting policies relate to revenue recognition, inventories and cost of sales, warranty claims and legal claims and insurance. Since September 30, ~~2019,~~2020, there have been no significant changes to those critical accounting policies.

As disclosed in our critical accounting policies in our Form 10-K for the fiscal year ended September 30, ~~2019,~~2020, our reserves for construction defect claims include the estimated costs of both known claims and anticipated future claims. At ~~June~~December 31, 2020 and September 30, 2020, we had reserves for approximately 270 and 260 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the three months ended December 31, 2020, we established reserves for approximately 30 new construction defect claims and resolved 20 construction defect claims for a total cost of $2.3 million. At December 31, 2019 and September 30, 2019, we had reserves for approximately ~~240~~195 and 180 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the ~~nine~~three months ended ~~June 30, 2020,~~December 31, 2019, we established reserves for approximately ~~120~~35 new construction defect claims and resolved 6020 construction defect claims for a total cost of $20.6 million. At June 30, 2019 and September 30, 2018, we had reserves for approximately 180 and 155 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the nine months ended June 30, 2019, we established reserves for approximately 80 new construction defect claims and resolved 55 construction defect claims for a total cost of $6.9$14.9 million.

SEASONALITY

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 operating income in the third and fourth quarters of our fiscal year. The seasonal nature of our business can also cause significant variations in our working capital requirements in our homebuilding, 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. ~~Due to the impact of C-19, our homes closed, revenues and operating income in fiscal 2020 may not follow our historical seasonal patterns.~~

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Forward-Looking Statements

Some of the statements contained in this report, as well as in other materials we have filed or will file with the SEC, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,” “projection,” “seek,” “should,” “strategy,” “target,” “will,” “would” or other words of similar meaning. Any or all of the forward-looking statements included in this report and in any other of our reports or public statements may not approximate actual experience, and the expectations derived from them may not be realized, due to risks, uncertainties and other factors. As a result, actual results may differ materially from the expectations or results we discuss in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

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

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

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

•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 and lot inventory;

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

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

•home warranty and construction defect claims;

•the effects of health and safety incidents;

•~~the effects of negative publicity;~~

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

•reductions in the availability of performance bonds;

•increases in the costs of owning a home;

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

•��the effects of governmental regulations on our financial services operations;

•competitive conditions within the homebuilding, lot development and financial services industries;

•our ability to manage and service our debt and comply with related debt covenants, restrictions and limitations;

•~~competitive conditions within~~ the ~~homebuilding, lot development and financial services industries;~~effects of negative publicity;

•the effects of the loss of key personnel; and

•information technology failures, data security breaches and our ability to satisfy privacy and data ~~security breaches.~~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. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained in our annual report on Form 10-K for the fiscal year ended September 30, ~~2019, which is filed with the SEC,~~2020, including the section entitled “Risk Factors,” ~~as supplemented by Part II, Item 1A. in this quarterly report on Form 10-Q.~~which is filed with the SEC.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk on our long-term debt. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except in very limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt until such time as we are required to refinance, repurchase or repay such debt.

We are exposed to interest rate risk associated with our mortgage loan origination services. We manage interest rate risk through the use of forward sales of mortgage-backed securities (MBS), which are referred to as “hedging instruments” in the following discussion. We do not enter into or hold derivatives for trading or speculative purposes.

Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than six months. Some IRLCs are committed immediately to a specific purchaser through the use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being committed to third-party purchasers. The hedging instruments related to IRLCs are classified and accounted for as derivative instruments in an economic hedge, with gains and losses recognized in revenues in the consolidated statements of operations. Hedging instruments related to funded, uncommitted loans are accounted for at fair value, with changes recognized in revenues in the consolidated statements of operations, along with changes in the fair value of the funded, uncommitted loans. The fair value change related to the hedging instruments generally offsets the fair value change in the uncommitted loans. The net fair value change, which for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019 was not significant, is recognized in current earnings. At ~~June 30,~~December 31, 2020, hedging instruments used to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled a notional amount of ~~$2.8~~$2.4 billion. Uncommitted IRLCs totaled a notional amount of approximately ~~$1.8~~$1.5 billion and uncommitted mortgage loans held for sale totaled a notional amount of approximately ~~$1.1 billion~~$966.5 million at ~~June 30,~~December 31, 2020.

We ~~occasionally enter into forward sales of MBS~~also use hedging instruments as part of a program to offer below market interest rate financing to our ~~homebuyers in certain markets.~~homebuyers. At ~~June~~December 31, 2020 and September 30, 2020, we had MBS totaling ~~$1.3~~$1.4 billion and $1.1 billion, respectively, that did not yet have IRLCs or closed loans created or assigned and recorded a liability of ~~$11.7~~$7.5 million and $5.3 million for the fair value of such MBS position.

The following table sets forth principal cash flows by scheduled maturity, effective weighted average interest rates and estimated fair value of our debt obligations as of ~~June 30,~~December 31, 2020. Because the mortgage repurchase facility is effectively secured by certain mortgage loans held for sale that are typically sold within 60 days, its outstanding balance is included in the most current period presented. The interest rate for our variable rate debt represents the weighted average interest rate in effect at ~~June 30,~~December 31, 2020.


		Three Months Ending September 30, 2020	Fiscal Year Ending September 30,																															Fair Value at June 30, 2020				Nine Months Ending September 30, 2021				Fiscal Year Ending September 30,								Fair Value at December 31, 2020
				2021		2022		2023		2024		2025		Thereafter		Total			Fair Value at June 30, 2020			Nine Months Ending September 30, 2021			2022			2023			2024					2025				Thereafter					Total			Fair Value at December 31, 2020
		($ in millions)																																										($ in millions)
Debt:	Debt:																	Debt:
Fixed rate	Fixed rate	$—	$444.1		$350.3		$700.4		$350.3		$500.4		$800.8		$3,146.3		$3,299.7	Fixed rate			$64.1			$350.3			$700.4			$365.3			$500.4				$500.4				$800.3					$3,281.2			$3,471.1
Average interest rate	Average interest rate	—%	2.9%		4.5%		5.5%		8.6%		2.7%		3.8%		4.5%			Average interest rate		3.8%			4.5%			5.5%			8.4%			2.7%				2.8%			3.0%				4.2%
Variable rate	Variable rate	$1,172.9	$—		$—		$—		$—		$—		$—		$1,172.9		$1,172.9	Variable rate		$969.1		$—			$—			$—			$—				$—			$—				$969.1					$969.1
Average interest rate	Average interest rate	2.4%	—%		—%		—%		—%		—%		—%		2.4%			Average interest rate		2.4%		—%			—%			—%			—%				—%			—%				2.4%

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures as of ~~June 30,~~December 31, 2020 were effective in providing reasonable assurance that information required to be disclosed in the reports the Company files, furnishes, submits or otherwise provides the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed in reports filed by the Company under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and CFO, in such a manner as to allow timely decisions regarding the required disclosure.

There have been no changes in the Company’s internal controls over financial reporting during the quarter ended ~~June 30,~~December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in lawsuits and other contingencies in the ordinary course of business. While the outcome of such contingencies cannot be predicted with certainty, we believe that the liabilities arising from these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds our estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.

In fiscal 2013, our mortgage subsidiary was subpoenaed by the United States Department of Justice (DOJ) regarding the adequacy of certain underwriting and quality control processes related to Federal Housing Administration loans originated and sold in prior years. We have provided information related to these loans and our processes to the DOJ, and communications are ongoing. The DOJ has to date not asserted any formal claim amount, penalty or fine.

~~In May and July of 2014,~~With respect to administrative or judicial proceedings involving the environment, we received Notices of Violation from the United States Environmental Protection Agency (EPA) related to stormwater compliance at certain of our sites in our Southeast region. This matter could potentiallyhave determined that we will disclose any such proceeding if we reasonably believe such proceeding will result in monetary sanctions, ~~to the Company; however, we do not~~exclusive of interest and costs, at or in excess of $1 million. We believe itthat such threshold is reasonably ~~possible that this matter would~~designed to result in ~~a loss~~disclosure of environmental proceedings that ~~would have a~~are material ~~effect on~~to our ~~consolidated~~business or financial ~~position, results of operations or cash flows.~~

We are participating in settlement discussions with the U.S. Army Corps of Engineers (ACOE) and DOJ concerning alleged violations of the wetlands provisions of the Clean Water Act at a development site in our Southeast region relating to a violation notice the ACOE issued in April 2017. This matter could potentially result in a settlement that includes a penalty of approximately $350,000 without an admission of liability. We do not believe it is reasonably possible that this matter will result in a loss that would have a material effect on our consolidated financial position, results of operations or cash flows.condition.

ITEM ~~1A. RISK FACTORS~~2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In addition to the risk factors previously identified in our annual report on Form 10-K for the fiscal year ended September 30, 2019 and our quarterly report on Form 10-Q for the quarter ended March 31, 2020, we have updated the following risk factor related to public health issues.Issuer Purchases of Equity Securities

~~Public health issues such as a major epidemic or pandemic could adversely affect~~We may repurchase shares of our ~~business or financial results.~~common stock from time to time pursuant to our common stock repurchase authorization. The following table sets forth information concerning our common stock repurchases during the three months ended December 31, 2020. All share repurchases were made in accordance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934.


	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased Under the Plans or Programs (1) (In millions)
October 1, 2020 - October 31, 2020	—	$	—	—	$	535.3
November 1, 2020 - November 30, 2020	—	$	—	—	535.3
December 1, 2020 - December 31, 2020	1,000,000	$	69.85	1,000,000	465.5
Total	1,000,000	$	69.85	1,000,000	$	465.5

~~The U.S. and other countries have experienced, and may experience in~~_________________

(1) Shares purchased during the ~~future, outbreaks of contagious diseases that affect public health and public perception of health risk. In~~three months ended December 2019, a novel coronavirus (C-19) emerged in the Wuhan region of China and subsequently spread worldwide. The World Health Organization declared C-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time. In almost all of the municipalities across the U.S. where we operate, residential construction and financial services have been deemed essential businesses as31, 2020 were part of ~~critical infrastructure, and we have continued~~a $1.0 billion common stock repurchase authorization approved by our homebuilding, lot development and financial services operations in those markets where allowed. We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelinesBoard of Directors effective July 30, 2019. The authorization has no expiration date. At December 31, 2020, there was $465.5 million remaining on the ~~Centers for Disease Control and Prevention and other public health authorities.~~

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence. There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers. The extent to which C-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted. If C-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.repurchase authorization.

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ITEM 6. EXHIBITS

(a)

Exhibits.

2.1

Agreement and Plan of Merger dated June 29, 2017 by and among D.R. Horton, Inc., Force Merger Sub, Inc. and Forestar Group Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K dated June 29, 2017, filed with the SEC on June 29, 2017).

3.1

Certificate of Amendment of the Amended and Restated Certificate of Incorporation, as amended, of the Company dated January 31, 2006, and the Amended and Restated Certificate of Incorporation, as amended, of the Company dated March 18, 1992 (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed with the SEC on February 2, 2006).

3.2

Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 2, 2017, filed with the SEC on November 8, 2017).

4.1

~~Second~~Third Supplemental Indenture, dated as of ~~May 5,~~October 2, 2020, among the Company, the guarantors named therein an d and Truist Bank (formerly known as Branch Banking and Trust ~~Company~~Company), as trustee, relating to the ~~2.600%~~1.400% Senior Notes Due ~~2025~~ 2027 issued by the Company (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated ~~May 5,~~October 2, 2020, filed with the SEC on ~~May 5, 2020).~~

~~10.1~~

Tenth Amendment to Second Amended and Restated Master Repurchase Agreement, dated May 15, 2020, among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book Runner, Lead Arranger, and a Buyer, and all other Buyers (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 15, 2020, filed with the SEC on May 21, 2020).

~~10.2~~

364-Day Credit Agreement, dated May 28, 2020, among the Company, the guarantors party thereto, Mizuho Bank, Ltd., as administrative agent, joint book runner, arranger, and a lender, and the other lenders party thereto (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 28, 2020, filed with the SEC on June 1,October 2, 2020).

22.1

List of Guarantor Subsidiaries (incorporated by reference from Exhibit 22.1 to the Company’s ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March 31,~~September 30, 2020, filed with the SEC on ~~April 29,~~November 20, 2020).

31.1

Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2

Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of ~~2002~~.2002.

32.1

Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Executive Officer.

32.2

Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Financial Officer.

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101).

Filed or furnished herewith.

Submitted electronically herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			D.R. HORTON, INC.
Date:	~~July 30, 2020~~January 27, 2021	By:	/s/ Bill W. Wheat
			Bill W. Wheat
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)
Date:	~~July 30, 2020~~January 27, 2021	By:	/s/ Aron M. Odom
			Aron M. Odom
			Vice President and Controller
			(Principal Accounting Officer)

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	Three Months Ended June 30, 2019
	Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated
	(In millions)
Revenues
Home sales	$	4,734.6	$	—	$	—	$	—	$	—	$	—	$	4,734.6
Land/lot sales and other	27.5		88.2		—		9.6		(73.2)		—		52.1
Financial services	—		—		119.6		—		—		—		119.6
	4,762.1		88.2		119.6		9.6		(73.2)		—		4,906.3
Cost of sales
Home sales (5)	3,773.0		—		—		—		(1.3)		—		3,771.7
Land/lot sales and other	23.2		75.3		—		—		(66.0)		8.2		40.7
Inventory and land option charges	19.2		—		—		—		—		—		19.2
	3,815.4		75.3		—		—		(67.3)		8.2		3,831.6
Selling, general and administrative expense	387.4		7.9		76.4		8.2		—		0.1		480.0
Gain on sale of assets	—		(1.5)		—		(22.6)		—		1.5		(22.6)
Other (income) expense	(2.5)		(1.9)		(4.9)		(0.1)		—		—		(9.4)
Income before income taxes	$	561.8	$	8.4	$	48.1	$	24.1	$	(5.9)	$	(9.8)	$	626.7


	Nine Months Ended June 30, 2019
	Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)		Other Adjustments (4)		Consolidated
	(In millions)
Revenues:
Home sales	$	12,125.8	$	—	$	—	$	—	$	—	$	—	$	12,125.8
Land/lot sales and other	49.2		192.0		—		22.4		(141.8)		—		121.8
Financial services	—		—		306.4		—		—		—		306.4
	12,175.0		192.0		306.4		22.4		(141.8)		—		12,554.0
Cost of sales:
Home sales (5)	9,716.5		—		—		—		(3.1)		—		9,713.4
Land/lot sales and other	37.6		149.6		—		—		(122.2)		20.0		85.0
Inventory and land option charges	41.0		—		—		—		—		—		41.0
	9,795.1		149.6		—		—		(125.3)		20.0		9,839.4
Selling, general and administrative expense	1,071.4		19.8		213.4		22.1		—		0.3		1,327.0
Gain on sale of assets	(2.0)		(2.4)		—		(51.9)		—		2.4		(53.9)
Other (income) expense	(6.1)		(4.6)		(12.6)		(0.4)		—		—		(23.7)
Income before income taxes	$	1,316.6	$	29.6	$	105.6	$	52.6	$	(16.5)	$	(22.7)	$	1,465.2
Summary Cash Flow Information:
Depreciation and amortization	$	46.4	$	0.2	$	1.1	$	4.3	$	—	$	0.4	$	52.4
Cash provided by (used in) operating activities	$	605.7	$	(450.1)	$	(65.5)	$	(2.5)	$	(2.5)	$	(4.4)	$	80.7


		Fair Value at June 30, 2020						Fair Value at September 30, 2019
	Balance Sheet Location	Level 2		Level 3		Level 2		Level 3
		(In millions)
Inventory held and used (a) (b)	Inventories	$	—	$	—	$	—	$	4.5
Mortgage loans held for sale (a) (c)	Mortgage loans held for sale	—		4.2		—		2.7
Other mortgage loans (a) (d)	Other assets	—		2.8		—		1.8


	Sales Order Backlog
	As of June 30,
	Homes in Backlog								Value (In millions)								Average Selling Price
	2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East	3,028	2,267	34	%	$	929.3	$	675.5	38	%	$	306,900	$	298,000	3	%
Midwest	1,834	1,253	46	%	646.6		414.0		56	%	352,600		330,400		7	%
Southeast	6,675	5,056	32	%	1,873.7		1,409.6		33	%	280,700		278,800		1	%
South Central	7,380	5,086	45	%	1,920.0		1,313.4		46	%	260,200		258,200		1	%
Southwest	1,348	957	41	%	384.8		264.8		45	%	285,500		276,700		3	%
West	2,940	1,888	56	%	1,259.4		893.0		41	%	428,400		473,000		(9)	%
	23,205	16,507	41	%	$	7,013.8	$	4,970.3	41	%	$	302,300	$	301,100	—	%