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OFFON

D.R. HORTON, INC.

(DHI)
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D R Horton : HORTON D R INC /DE/ MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

04/26/2021 | 04:44pm EDT
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, 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 91 markets across 29 states, primarily under the names of
D.R. Horton, America's Builder, Emerald 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 $150,000 to more than $1,000,000, with an average closing price of $308,800
during the six months ended March 31, 2021. Approximately 91% of our home sales
revenue in the six months ended March 31, 2021 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 this segment of the new home market remains under-served, with
low inventory levels relative to demand.

During fiscal 2020, we also 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 six months ended March 31,
2021, 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 March 31, 2021, our homebuilding fixed assets included $182.6
million of assets related to 27 single-family rental communities, and our
single-family rental platform included 1,650 homes and finished lots, of which
570 homes were completed.

At March 31, 2021, we owned 64% of the outstanding shares of Forestar Group Inc.
(Forestar), a publicly traded residential lot development company listed on the
New York Stock Exchange under the ticker symbol "FOR." Forestar is a key part of
our homebuilding strategy to 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.
Forestar has made significant investments in land acquisition and development
over the last few years 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 homebuilding transactions.



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In addition to our homebuilding, Forestar and financial services operations, we
engage in other business 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 results of
these operations are immaterial for separate reporting and therefore are grouped
together and presented as other. Our multi-family rental operations develop,
construct, lease and own multi-family residential properties that produce rental
income. We primarily focus on constructing garden style multi-family
communities, which typically accommodate 200 to 400 dwelling units, in high
growth suburban markets. After we complete construction and achieve a stabilized
level of leased occupancy, the property is typically marketed for sale. At
March 31, 2021 and September 30, 2020, our consolidated balance sheets included
$394.4 million and $246.2 million, respectively, of assets related to
multi-family rental operations. Total assets related to other business
activities were $547.5 million and $379.4 million at March 31, 2021 and
September 30, 2020, respectively.


OVERVIEW

Fiscal Year-to-Date Operating Results


During the six months ended March 31, 2021, the number and value of our net
sales orders increased 43% and 53%, respectively, compared to the prior year
period. During the six months ended March 31, 2021, our number of homes closed
and home sales revenues increased 40% and 44%, respectively, compared to the
prior year period, and our consolidated revenues increased 45% to $12.4 billion
compared to $8.5 billion in the prior year period. Our pre-tax income was $2.2
billion in the six months ended March 31, 2021 compared to $1.1 billion in the
prior year period, and our pre-tax operating margin was 17.9% compared to 13.4%.
Net income was $1.7 billion in the six months ended March 31, 2021 compared to
$916.4 million in the prior year period.

In the trailing twelve months ended March 31, 2021, our return on equity (ROE)
was 27.1% compared to 19.1% in the prior year period, and our homebuilding
return on inventory (ROI) was 31.2% compared to 20.2%. 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 75% of the lots owned and controlled at March 31,
2021 compared to 70% at September 30, 2020 and 64% at March 31, 2020. Our
relationship with Forestar and expanded relationships with other land developers
across the country have allowed us to increase the controlled portion of our lot
pipeline.

COVID-19

During 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 decreased sales orders compared to the prior year. However, as
economic activity began to resume and restrictive orders were eased, demand for
our homes improved significantly during the remainder of fiscal 2020 and has
remained strong throughout the first half of fiscal 2021. We believe the
increase in demand has been fueled by historically low interest rates on
mortgage loans and the limited supply of homes at affordable price points across
most of our markets. We were and remain well-positioned for increased demand
with our affordable product offerings, lot supply and housing inventory.

We believe our strong balance sheet and liquidity position provide us with the
flexibility to operate effectively through 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 maximize the returns on our inventory investments and generate
strong profitability and cash flows, while managing risk and maintaining
financial flexibility to navigate changing economic conditions and make
opportunistic strategic investments. We made operational adjustments as a result
of 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, including starting construction on unsold homes to capture new
home demand and actively controlling the number of unsold, completed homes in
inventory.
•Investing in land and land development in desirable markets, 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 other land
developers across the 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 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 changing economic
conditions to maintain and improve our financial and competitive position.
However, we cannot provide any assurances that the initiatives listed above will
continue to be successful, and we may need to adjust parts of our strategy to
meet future market conditions.

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KEY RESULTS

Key financial results as of and for the three months ended March 31, 2021, as compared to the same period of 2020, were as follows:

Homebuilding:

•Homebuilding revenues increased 41% to $6.2 billion compared to $4.4 billion.
•Homes closed increased 36% to 19,701 homes, and the average closing price of
those homes was $313,200.
•Net sales orders increased 35% to 27,059 homes, and the value of net sales
orders increased 47% to $8.8 billion.
•Sales order backlog increased 85% to 35,845 homes, and the value of sales order
backlog increased 97% to $11.6 billion.
•Home sales gross margin was 24.6% compared to 21.3%.
•Homebuilding SG&A expense was 7.6% of homebuilding revenues compared to 8.3%.
•Homebuilding pre-tax income was $1.1 billion compared to $565.5 million.
•Homebuilding pre-tax income was 17.0% of homebuilding revenues compared to
12.9%.
•Homebuilding cash and cash equivalents totaled $1.9 billion compared to $2.6
billion and $1.0 billion at September 30, 2020 and March 31, 2020, respectively.
•Homebuilding inventories totaled $12.9 billion compared to $11.0 billion and
$11.1 billion at September 30, 2020 and March 31, 2020, respectively.
•Homes in inventory totaled 46,100 compared to 38,000 and 33,400 at
September 30, 2020 and March 31, 2020, respectively.
•Owned lots totaled 121,500 compared to 112,600 and 118,700 at September 30,
2020 and March 31, 2020, respectively. Lots controlled through purchase
contracts increased to 365,200 from 264,300 and 210,600 at September 30, 2020
and March 31, 2020, respectively.
•Homebuilding debt was $2.6 billion compared to $2.5 billion at both
September 30, 2020 and March 31, 2020.
•Homebuilding debt to total capital was 16.8% compared to 17.5% and 19.2% at
September 30, 2020 and March 31, 2020, respectively.


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Forestar:

•Forestar's revenues increased 80% to $287.1 million compared to $159.1 million.
Revenues in the current and prior year quarters included $268.3 million and
$151.9 million, respectively, of revenue from land and lot sales to our
homebuilding segment.
•Forestar's lots sold increased 84% to 3,588 compared to 1,951. Lots sold to
D.R. Horton totaled 3,358 compared to 1,906.
•Forestar's pre-tax income was $37.6 million compared to $13.7 million.
•Forestar's pre-tax income was 13.1% of revenues compared to 8.6%.
•Forestar's cash and cash equivalents totaled $167.2 million compared to $394.3
million and $438.2 million at September 30, 2020 and March 31, 2020,
respectively.
•Forestar's inventories totaled $1.7 billion compared to $1.3 billion and $1.2
billion at September 30, 2020 and March 31, 2020, respectively.
•Forestar's owned and controlled lots totaled 84,500 compared to 60,500 and
52,300 at September 30, 2020 and March 31, 2020, respectively. Of these lots,
37,100 were under contract to sell to or subject to a right of first offer with
D.R. Horton compared to 30,400 and 28,600 at September 30, 2020 and March 31,
2020, respectively.
•Forestar's debt was $654.6 million compared to $641.1 million and $640.1
million at September 30, 2020 and March 31, 2020, respectively.
•Forestar's debt to total capital was 41.0% compared to 42.4% and 43.4% at
September 30, 2020 and March 31, 2020, respectively.

Financial Services:
•Financial services revenues increased 115% to $225.1 million compared to $104.5
million.
•Financial services pre-tax income increased 336% to $107.7 million compared to
$24.7 million.
•Financial services pre-tax income was 47.8% of financial services revenues
compared to 23.6%.

Consolidated Results:
•Consolidated pre-tax income increased 90% to $1.2 billion compared to $621.3
million.
•Consolidated pre-tax income was 18.3% of consolidated revenues compared to
13.8%.
•Income tax expense was $246.0 million compared to $137.3 million, and our
effective tax rate was 20.8% compared to 22.1%.
•Net income attributable to D.R. Horton increased 93% to $929.5 million compared
to $482.7 million.
•Diluted net income per common share attributable to D.R. Horton increased 95%
to $2.53 compared to $1.30.
•Stockholders' equity was $13.0 billion compared to $11.8 billion and $10.5
billion at September 30, 2020 and March 31, 2020, respectively.
•Book value per common share increased to $35.96 compared to $32.53 and $28.77
at September 30, 2020 and March 31, 2020, respectively.
•Debt to total capital was 25.7% compared to 26.6% at September 30, 2020 and
29.2% at March 31, 2020.


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Key financial results for the six months ended March 31, 2021, as compared to
the same period of 2020, were as follows:

Homebuilding:

•Homebuilding revenues increased 44% to $11.9 billion compared to $8.3 billion.
•Homes closed increased 40% to 38,440 homes, and the average closing price of
those homes was $308,800.
•Net sales orders increased 43% to 47,477 homes, and the value of net sales
orders increased 53% to $15.3 billion.
•Home sales gross margin was 24.4% compared to 21.1%.
•Homebuilding SG&A expense was 7.7% of homebuilding revenues compared to 8.7%.
•Homebuilding pre-tax income was $2.0 billion compared to $1.0 billion.
•Homebuilding pre-tax income was 16.7% of homebuilding revenues compared to
12.4%.
•Net cash provided by homebuilding operations was $138.0 million compared to
$52.1 million.

Forestar:

•Forestar's revenues increased 46% to $594.2 million compared to $406.4 million.
Revenues in the current and prior year periods included $562.5 million and
$373.2 million, respectively, of revenue from land and lot sales to our
homebuilding segment.
•Forestar's lots sold increased 64% to 7,155 compared to 4,373. Lots sold to
D.R. Horton totaled 6,747 compared to 4,296.
•Forestar's pre-tax income was $66.8 million compared to $35.8 million.
•Forestar's pre-tax income was 11.2% of revenues compared to 8.8%.

Financial Services:
•Financial services revenues increased 99% to $412.3 million compared to $207.4
million.
•Financial services pre-tax income increased 247% to $191.8 million compared to
$55.2 million.
•Financial services pre-tax income was 46.5% of financial services revenues
compared to 26.6%.

Consolidated Results:
•Consolidated pre-tax income increased 93% to $2.2 billion compared to $1.1
billion.
•Consolidated pre-tax income was 17.9% of consolidated revenues compared to
13.4%.
•Income tax expense was $485.1 million compared to $228.1 million, and our
effective tax rate was 21.9% compared to 19.9%.
•Net income attributable to D.R. Horton increased 88% to $1.7 billion compared
to $914.0 million.
•Diluted net income per common share attributable to D.R. Horton increased 90%
to $4.67 compared to $2.46.
•Net cash used in operations was $154.9 million compared to $395.1 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                                    Midwest Region
Delaware            Central Delaware               Colorado        Colorado Springs
                    Northern Delaware                              Denver
Georgia             Savannah                                       Fort Collins
Maryland            Baltimore                      Illinois        Chicago
                    Suburban Washington, D.C.      Indiana         Fort Wayne
New Jersey          Northern New Jersey                            Indianapolis
                    Southern New Jersey                            Northwest Indiana
North Carolina      Asheville                      Iowa            Des Moines
                    Charlotte                      Minnesota      

Minneapolis/St. Paul

                    Greensboro/Winston-Salem       Ohio            Cincinnati
                    Raleigh/Durham                                 Columbus
                    Wilmington
Pennsylvania        Central Pennsylvania                           South Central Region
                    Philadelphia                   Louisiana       Baton Rouge
South Carolina      Charleston                                     Lake Charles/Lafayette
                    Columbia                       Oklahoma        Oklahoma City
                    Greenville/Spartanburg         Texas           Austin
                    Hilton Head                                   

Bryan/College Station

                    Myrtle Beach                                   Corpus Christi
Virginia            Northern Virginia                              Dallas
                    Southern Virginia                              Fort Worth
                                                                   Houston
                    Southeast Region                              

Killeen/Temple/Waco

Alabama             Birmingham                                     

Midland/Odessa

                    Huntsville                                     New 

Braunfels/San Marcos

                    Mobile/Baldwin County                          San Antonio
                    Montgomery
                    Tuscaloosa                                     Southwest Region
Florida             Fort Myers/Naples              Arizona         Phoenix
                    Gainesville                                    Tucson
                    Jacksonville                   New Mexico      Albuquerque
                    Lakeland
                    Melbourne/Vero Beach                           West Region
                    Miami/Fort Lauderdale          California      Bakersfield
                    Ocala                                          Bay Area
                    Orlando                                        Fresno
                    Pensacola/Panama City                          Los Angeles County
                    Port St. Lucie                                 Modesto/Merced
                    Tampa/Sarasota                                 Riverside County
                    Volusia County                                 Sacramento
                    West Palm Beach                                San Bernardino County
Georgia             Atlanta                                        San Diego County
                    Augusta                        Hawaii          Oahu
Mississippi         Gulf Coast                     Nevada          Las Vegas
Tennessee           Chattanooga                                    Reno
                    Knoxville                      Oregon          Bend
                    Memphis                                        Portland/Salem
                    Nashville                      Utah            Salt Lake City
                                                   Washington     

Seattle/Tacoma/Everett/Olympia

                                                                   Spokane
                                                                   Vancouver




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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 six months ended March 31, 2021 and 2020.

                                                                                                        Net Sales Orders (1)
                                                                                                    Three Months Ended March 31,
                                                 Net Homes Sold                                         Value (In millions)                                      Average Selling Price
                                                                          %                                                         %                                                          %
                                   2021               2020              Change              2021                2020              Change               2021                2020              Change
East                                   3,287             2,749              20  %       $  1,074.3          $   803.8                 34  %       $   326,800          $ 292,400                 12  %
Midwest                                1,770             1,426              24  %            691.7              506.4                 37  %           390,800            355,100                 10  %
Southeast                              9,473             6,016              57  %          2,953.9            1,634.9                 81  %           311,800            271,800                 15  %
South Central                          8,574             6,139              40  %          2,406.5            1,569.0                 53  %           280,700            255,600                 10  %
Southwest                              1,318               942              40  %            442.4              267.6                 65  %           335,700            284,100                 18  %
West                                   2,637             2,815              (6) %          1,280.2            1,239.2                  3  %           485,500            440,200                 10  %
                                      27,059            20,087              35  %       $  8,849.0          $ 6,020.9                 47  %       $   327,000          $ 299,700                  9  %

                                                                                                     Six Months Ended March 31,
                                                 Net Homes Sold                                         Value (In millions)                                      Average Selling Price
                                                                          %                                                         %                                                          %
                                   2021               2020              Change              2021                2020              Change               2021                2020              Change
East                                   5,921             4,590              29  %       $  1,936.0          $ 1,350.5                 43  %       $   327,000          $ 294,200                 11  %
Midwest                                3,025             2,140              41  %          1,167.5              761.7                 53  %           386,000            355,900                  8  %
Southeast                             16,480            10,390              59  %          5,036.1            2,826.7                 78  %           305,600            272,100                 12  %
South Central                         15,264             9,914              54  %          4,213.0            2,533.2                 66  %           276,000            255,500                  8  %
Southwest                              2,220             1,609              38  %            727.0              467.3                 56  %           327,500            290,400                 13  %
West                                   4,567             4,570               -  %          2,185.4            2,031.2                  8  %           478,500            444,500                  8  %
                                      47,477            33,213              43  %       $ 15,265.0          $ 9,970.6                 53  %       $   321,500          $ 300,200                  7  %



                                                                                            Sales Order Cancellations
                                                                                          Three Months Ended March 31,
                                          Cancelled Sales Orders                           Value (In millions)                                Cancellation Rate (2)
                                       2021                       2020                   2021                2020                            2021                       2020
East                                          669                      660           $    205.0          $   188.5                                      17  %              19  %
Midwest                                       289                      224                105.3               75.7                                      14  %              14  %
Southeast                                   1,935                    1,695                576.2              463.1                                      17  %              22  %
South Central                               1,612                    1,372                429.3              352.9                                      16  %              18  %
Southwest                                     186                      224                 56.6               65.8                                      12  %              19  %
West                                          226                      395                106.2              178.8                                       8  %              12  %
                                            4,917                    4,570           $  1,478.6          $ 1,324.8                                      15  %              19  %

                                                                                           Six Months Ended March 31,
                                          Cancelled Sales Orders                           Value (In millions)                                Cancellation Rate (2)
                                       2021                       2020                   2021                2020                            2021                       2020
East                                        1,239                    1,090           $    376.0          $   311.6                                      17  %              19  %
Midwest                                       537                      385                198.0              126.8                                      15  %              15  %
Southeast                                   3,611                    2,866              1,053.1              783.7                                      18  %              22  %
South Central                               3,045                    2,366                802.7              607.4                                      17  %              19  %
Southwest                                     392                      384                116.3              110.5                                      15  %              19  %
West                                          501                      686                230.1              308.7                                      10  %              13  %
                                            9,325                    7,777           $  2,776.2          $ 2,248.7                                      16  %              19  %


 ________
(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.


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Net Sales Orders


The number of net sales orders increased 35% and 43% in the three and six months
ended March 31, 2021, respectively, compared to the prior year periods, with
increases in most of our regions. The value of net sales orders increased 47% to
$8.8 billion (27,059 homes) and 53% to $15.3 billion (47,477 homes) for the
three and six months ended March 31, 2021, respectively, compared to $6.0
billion (20,087 homes) and $10.0 billion (33,213 homes) in the prior year
periods. The average selling price of net sales orders during the three and six
months ended March 31, 2021 was $327,000 and $321,500, respectively, up 9% and
7% from the prior year periods.

The markets contributing most to the increases in sales volumes in our regions
were as follows: the Carolina markets in the East; the Denver and Indianapolis
markets in the Midwest; the Florida markets (particularly Tampa) in the
Southeast; the Houston, Dallas, San Antonio and Louisiana markets in the South
Central; and the Phoenix market in the Southwest. The decrease in sales volume
in our West region in the current quarter compared to the prior year was
primarily due to our Seattle market.

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 15% and 16% in the three and six months ended March 31, 2021, respectively, compared to 19% in both prior year periods.


Our sales order pace has shown continued strength throughout the first half of
fiscal 2021 and reflects increased demand due to historically low interest rates
on mortgage loans and the continued limited supply of homes at affordable price
points across most of our markets.

                                                                                                        Sales Order Backlog
                                                                                                          As of March 31,
                                               Homes in Backlog                                        Value (In millions)                                      Average Selling Price
                                                                         %                                                         %                                                          %
                                  2021               2020              Change              2021                2020              Change               2021                2020              Change
East                                  4,243             2,725              56  %       $  1,407.5          $   826.7                 70  %       $   331,700          $ 303,400                  9  %
Midwest                               2,657             1,513              76  %          1,019.2              535.6                 90  %           383,600            354,000                  8  %
Southeast                            11,444             5,605             104  %          3,595.1            1,581.5                127  %           314,100            282,200                 11  %
South Central                        11,926             6,133              94  %          3,345.3            1,602.0                109  %           280,500            261,200                  7  %
Southwest                             2,645             1,081             145  %            848.0              313.2                171  %           320,600            289,700                 11  %
West                                  2,930             2,271              29  %          1,398.3            1,025.2                 36  %           477,200            451,400                  6  %
                                     35,845            19,328              85  %       $ 11,613.4          $ 5,884.2                 97  %       $   324,000          $ 304,400                  6  %



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.



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                                                                                                   Homes Closed and Home Sales Revenue
                                                                                                       Three Months Ended March 31,
                                                    Homes Closed                                             Value (In millions)                                      Average Selling Price
                                                                               %                                                         %                                                          %
                                      2021                 2020              Change              2021                2020              Change               2021                2020              Change
East                                        2,669             1,983              35  %       $    861.3          $   579.5                 49  %       $   322,700          $ 292,200                 10  %
Midwest                                     1,248               877              42  %            467.9              308.7                 52  %           374,900            352,000                  7  %
Southeast                                   6,996             4,831              45  %          2,043.2            1,315.4                 55  %           292,100            272,300                  7  %
South Central                               5,707             4,167              37  %          1,502.9            1,057.2                 42  %           263,300            253,700                  4  %
Southwest                                     807               680              19  %            243.1              199.7                 22  %           301,200            293,700                  3  %
West                                        2,274             2,001              14  %          1,052.0              902.8                 17  %           462,600            451,200                  3  %
                                           19,701            14,539              36  %       $  6,170.4          $ 4,363.3                 41  %       $   313,200          $ 300,100                  4  %

                                                                                                        Six Months Ended March 31,
                                                    Homes Closed                                             Value (In millions)                                      Average Selling Price
                                                                               %                                                         %                                                          %
                                      2021                 2020              Change              2021                2020              Change               2021                2020              Change
East                                        5,261             3,781              39  %       $  1,665.9          $ 1,099.9                 51  %       $   316,700          $ 290,900                  9  %
Midwest                                     2,384             1,690              41  %            879.9              590.9                 49  %           369,100            349,600                  6  %
Southeast                                  13,292             9,062              47  %          3,819.5            2,464.7                 55  %           287,400            272,000                  6  %
South Central                              11,376             7,947              43  %          2,976.3            2,015.2                 48  %           261,600            253,600                  3  %
Southwest                                   1,580             1,343              18  %            475.3              395.7                 20  %           300,800            294,600                  2  %
West                                        4,547             3,675              24  %          2,052.2            1,660.2                 24  %           451,300            451,800                  -  %
                                           38,440            27,498              40  %       $ 11,869.1          $ 8,226.6                 44  %       $   308,800          $ 299,200                  3  %




Home Sales Revenue

Revenues from home sales increased 41% to $6.2 billion (19,701 homes closed) for
the three months ended March 31, 2021 from $4.4 billion (14,539 homes closed) in
the prior year period. Revenues from home sales increased 44% to $11.9 billion
(38,440 homes closed) for the six months ended March 31, 2021 from $8.2 billion
(27,498 homes closed) in the prior year period. Home sales revenues increased in
all of our regions primarily due to an increase in the number of homes closed.

The number of homes closed increased 36% and 40% in the three and six months
ended March 31, 2021, respectively, compared to the prior year periods. The
markets contributing most to the increased closing volume in our regions were as
follows: the Carolina markets in the East; the Denver and Indianapolis markets
in the Midwest; the Florida markets in the Southeast; the Houston, Dallas and
San Antonio markets in the South Central; the Phoenix market in the Southwest;
and the California markets in the West.

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                                                   Homebuilding Operating Margin Analysis
                                                                           

Percentages of Related Revenues

                                                                   Three Months Ended                            Six Months Ended
                                                                        March 31,                                    March 31,
                                                               2021                   2020                  2021                  2020
Gross profit - home sales                                          24.6  %               21.3  %               24.4  %               21.1  %
Gross profit - land/lot sales and other                            26.6  %               27.1  %               28.8  %               29.8  %
Inventory and land option charges                                  (0.1) %               (0.2) %               (0.1) %               (0.2) %
Gross profit - total homebuilding                                  24.6  %               21.1  %               24.3  %               21.0  %
Selling, general and administrative expense                         7.6  %                8.3  %                7.7  %                8.7  %
Gain on sale of assets                                                -  %                  -  %               (0.1) %                  -  %
Other (income) expense                                                -  %               (0.1) %                  -  %               (0.1) %
Homebuilding pre-tax income                                        17.0  %               12.9  %               16.7  %               12.4  %



Home Sales Gross Profit

Gross profit from home sales increased to $1.5 billion in the three months ended
March 31, 2021 from $927.8 million in the prior year period and increased 330
basis points to 24.6% as a percentage of home sales revenues. The percentage
increase resulted from improvements of 320 basis points due to the average
selling price of our homes closed increasing by more than the average cost of
those homes, 10 basis points from a decrease in the amount of purchase
accounting adjustments related to prior year acquisitions, 10 basis points due
to a decrease in the amortization of capitalized interest, partially offset by
increased warranty and construction defect costs of 10 basis points.

Gross profit from home sales increased to $2.9 billion in the six months ended
March 31, 2021 from $1.7 billion in the prior year period and increased 330
basis points to 24.4% as a percentage of home sales revenues. The percentage
increase resulted from improvements of 300 basis points due to an increase in
the average selling price while the cost of our homes closed decreased slightly,
10 basis points from a decrease in the amount of purchase accounting adjustments
related to prior year acquisitions, 10 basis points due to a decrease in the
amortization of capitalized interest and 10 basis points due to a decrease in
warranty and construction defect costs.

We remain focused on managing the pricing, incentives and sales pace in each of
our communities to optimize the returns on our inventory investments and adjust
to local market conditions and new home demand. These actions could cause our
gross profit margins to fluctuate in future periods. If new home demand declines
from current levels, we would expect our gross profit margins to also decline.

Land/Lot Sales and Other Revenues


Land/lot sales and other revenues from our homebuilding operations were $17.3
million and $37.2 million in the three and six months ended March 31, 2021,
respectively, and $15.5 million and $35.2 million in the comparable periods of
fiscal 2020. 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 March 31, 2021, our homebuilding
operations had $24.1 million of land held for sale that we expect to sell in the
next twelve months.



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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
March 31, 2021, we determined that no communities were impaired, and no
impairment charges were recorded during the three months ended March 31, 2021.
During the six months ended March 31, 2021, impairment charges totaled $5.6
million. There were $1.7 million of impairment charges recorded in the three and
six months ended March 31, 2020.

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 six months ended March 31, 2021, earnest money and
pre-acquisition cost write-offs related to land purchase contracts that we have
terminated or expect to terminate were $3.2 million and $5.6 million,
respectively, compared to $7.1 million and $10.7 million in the same periods of
fiscal 2020.

Selling, General and Administrative (SG&A) Expense


SG&A expense from homebuilding activities increased 30% to $469.5 million and
28% to $920.6 million in the three and six months ended March 31, 2021,
respectively, from $361.8 million and $720.2 million in the prior year periods.
SG&A expense as a percentage of homebuilding revenues was 7.6% and 7.7% in the
three and six months ended March 31, 2021, respectively, compared to 8.3% and
8.7% in the prior year periods.

Employee compensation and related costs represented 81% and 80% of SG&A costs in
the three and six months ended March 31, 2021, respectively, compared to 73% in
both prior year periods. These costs increased 44% to $382.3 million and 40% to
$738.3 million in the three and six months ended March 31, 2021, respectively,
from $265.7 million and $527.7 million in the prior year periods. Our
homebuilding operations employed 7,916 and 6,987 employees at March 31, 2021 and
2020, 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 was $22.6 million and $47.0 million in the three and
six months ended March 31, 2021, respectively, compared to $22.9 million and
$47.2 million in the prior year periods. Interest charged to cost of sales was
0.7% and 0.8% of total cost of sales (excluding inventory and land option
charges) in the three and six months ended March 31, 2021, respectively,
compared to 0.8% in both prior year periods.

Gain on Sale of Assets


During the six months ended March 31, 2021, we sold one single-family rental
community representing 124 homes for $31.8 million, resulting in a gain on sale
of $13.1 million in our homebuilding segment and $0.9 million in our other
businesses.



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Other Income


Other income, net of other expenses, included in our homebuilding operations was
$1.8 million and $3.3 million in the three and six months ended March 31, 2021,
respectively, compared to $4.1 million and $9.6 million in the prior year
periods. Other income consists of interest income and various other types of
ancillary income, gains, expenses and losses not directly associated with sales
of homes, land and lots. The activities that result in this ancillary income are
not significant, either individually or in the aggregate.

Business Acquisition


In October 2020, we acquired the homebuilding operations of Braselton Homes in
Corpus Christi, Texas for approximately $23.0 million in cash. 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 March 31,
                                                                  2021                                                                 2020
                                                              Homebuilding                                                         Homebuilding
                                       Homebuilding             Pre-tax                  % of               Homebuilding             Pre-tax                  % of
                                         Revenues              Income (1)              Revenues               Revenues              Income (1)              Revenues
                                                                                                (In millions)
East                                 $       861.5          $       146.0                   16.9  %       $       579.7          $        73.3                   12.6  %
Midwest                                      468.4                   60.9                   13.0  %               308.7                   23.6                    7.6  %
Southeast                                  2,054.9                  376.7                   18.3  %             1,316.7                  187.8                   14.3  %
South Central                              1,504.1                  266.8                   17.7  %             1,066.4                  156.2                   14.6  %
Southwest                                    243.1                   39.5                   16.2  %               199.7                   30.8                   15.4  %
West                                       1,055.7                  162.2                   15.4  %               907.6                   93.8                   10.3  %
                                     $     6,187.7          $     1,052.1                   17.0  %       $     4,378.8          $       565.5                   12.9  %

                                                                                         Six Months Ended March 31,
                                                                  2021                                                                 2020
                                                              Homebuilding                                                         Homebuilding
                                       Homebuilding             Pre-tax                  % of               Homebuilding             Pre-tax                  % of
                                         Revenues              Income (1)              Revenues               Revenues              Income (1)              Revenues
                                                                                                (In millions)
East                                 $     1,670.7          $       278.5                   16.7  %       $     1,100.2          $       133.2                   12.1  %
Midwest                                      881.5                  110.1                   12.5  %               591.3                   42.3                    7.2  %
Southeast                                  3,833.3                  682.5                   17.8  %             2,467.3                  333.9                   13.5  %
South Central                              2,979.0                  531.5                   17.8  %             2,025.1                  288.9                   14.3  %
Southwest                                    475.7                   78.1                   16.4  %               410.7                   65.3                   15.9  %
West                                       2,066.1                  306.6                   14.8  %             1,667.2                  163.5                    9.8  %
                                     $    11,906.3          $     1,987.3                   16.7  %       $     8,261.8          $     1,027.1                   12.4  %

______________

(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 49% and 52% in the three and six
months ended March 31, 2021, respectively, compared to the prior year periods,
primarily due to increases in the number of homes closed in our New Jersey,
Myrtle Beach, Greenville and Charlotte markets. The region generated pre-tax
income of $146.0 million and $278.5 million in the three and six months ended
March 31, 2021, respectively, compared to $73.3 million and $133.2 million in
the prior year periods. Gross profit from home sales as a percentage of home
sales revenue (home sales gross profit percentage) increased by 370 basis points
in both the three and six months ended March 31, 2021 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 80 and 120 basis points in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to the increase in homebuilding revenues.


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Midwest Region - Homebuilding revenues increased 52% and 49% in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to increases in the number of homes closed in our Denver,
Chicago and Indianapolis markets. The region generated pre-tax income of $60.9
million and $110.1 million in the three and six months ended March 31, 2021,
respectively, compared to $23.6 million and $42.3 million in the prior year
periods. Home sales gross profit percentage increased by 360 basis points in
both the three and six months ended March 31, 2021 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 160 and 190 basis points in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to the increase in homebuilding revenues.

Southeast Region - Homebuilding revenues increased 56% and 55% in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to increases in the number of homes closed in all of our
markets. The region generated pre-tax income of $376.7 million and $682.5
million in the three and six months ended March 31, 2021, respectively, compared
to $187.8 million and $333.9 million in the prior year periods. Home sales gross
profit percentage increased by 320 and 330 basis points in the three and six
months ended March 31, 2021, respectively, compared to the prior year periods,
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 90 and 110 basis points in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to the increase in homebuilding revenues.

South Central Region - Homebuilding revenues increased 41% and 47% in the three
and six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to increases in the number of homes closed in most of our
Texas markets. The region generated pre-tax income of $266.8 million and $531.5
million in the three and six months ended March 31, 2021, respectively, compared
to $156.2 million and $288.9 million in the prior year periods. Home sales gross
profit percentage increased by 220 and 210 basis points in the three and six
months ended March 31, 2021, 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 50 and 80 basis points in the three and six months
ended March 31, 2021, respectively, compared to the prior year periods,
primarily due to the increase in homebuilding revenues.

Southwest Region - Homebuilding revenues increased 22% and 16% in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to increases in the number of homes closed in our Arizona
markets. The region generated pre-tax income of $39.5 million and $78.1 million
in the three and six months ended March 31, 2021, respectively, compared to
$30.8 million and $65.3 million in the prior year periods. Home sales gross
profit percentage increased by 190 and 180 basis points in the three and six
months ended March 31, 2021, 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 increased by 90 and 110 basis points in the three and six months
ended March 31, 2021, respectively, compared to the prior year periods, due to
increased costs to support the growth in inventories.

West Region - Homebuilding revenues increased 16% and 24% in the three and six
months ended March 31, 2021, respectively, compared to the prior year periods,
primarily due to increases in the number of homes closed in our Las Vegas,
Southern California and Sacramento markets. The region generated pre-tax income
of $162.2 million and $306.6 million in the three and six months ended March 31,
2021, respectively, compared to $93.8 million and $163.5 million in the prior
year periods. Home sales gross profit percentage increased by 450 and 400 basis
points in the three and six months ended March 31, 2021, respectively, compared
to the prior year periods, primarily due to the average cost of homes closed
decreasing while the average selling price increased in the three month period
and decreased slightly in the six month period. As a percentage of homebuilding
revenues, SG&A expenses decreased by 40 and 100 basis points in the three and
six months ended March 31, 2021, respectively, compared to the prior year
periods, primarily due to the 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 March 31, 2021 and September 30, 2020
are summarized as follows:

                                                                                As of March 31, 2021
                                                             Residential
                                                              Land/Lots
                                   Construction in          Developed and
                                     Progress and               Under                  Land Held              Land Held
                                    Finished Homes           Development            for Development           for Sale            Total Inventory
                                                                                    (In millions)
East                              $         975.1          $       536.8          $            5.5          $      1.4          $        1,518.8
Midwest                                     614.1                  497.6                         -                 1.8                   1,113.5
Southeast                                 2,112.4                1,175.4                      17.5                 0.6                   3,305.9
South Central                             1,930.5                1,546.4                       0.3                 0.6                   3,477.8
Southwest                                   382.2                  504.8                       1.1                   -                     888.1
West                                      1,238.8                1,113.0                       5.7                19.4                   2,376.9
Corporate and unallocated (1)               124.3                   90.4                       0.4                 0.3                     215.4
                                  $       7,377.4          $     5,464.4          $           30.5          $     24.1          $       12,896.4



                                                                          As of September 30, 2020
                                                         Residential
                                                          Land/Lots
                               Construction in          Developed and
                                 Progress and               Under                  Land Held              Land Held
                                Finished Homes           Development            for Development           for Sale            Total Inventory
                                                                                (In millions)
East                          $         785.3          $       531.2          $            5.5          $      6.3          $        1,328.3
Midwest                                 497.0                  459.0                       1.8                 0.7                     958.5
Southeast                             1,655.5                1,231.5                      32.3                 0.6                   2,919.9
South Central                         1,596.3                1,282.3                       0.3                 1.0                   2,879.9
Southwest                               244.2                  449.7                       1.6                 0.3                     695.8
West                                  1,137.3                  847.1                       5.7                19.0                   2,009.1
Corporate and unallocated (1)           121.9                  100.6                       0.6                 0.4                     223.5
                              $       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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Table of Contents Our homebuilding segment's land and lot position and homes in inventory at March 31, 2021 and September 30, 2020 are summarized as follows:

                                             As of March 31, 2021
                                         Lots Controlled
                                              Under              Total
                                           Land and Lot        Land/Lots            Homes
                     Land/Lots               Purchase          Owned and             in
                     Owned (1)           Contracts (2)(3)      Controlled       Inventory (4)
East                          11,000                69,100          80,100                5,900
Midwest                        8,500                28,300          36,800                3,100
Southeast                     27,000               124,600         151,600               14,400
South Central                 46,200                98,200         144,400               14,700
Southwest                      7,100                13,700          20,800                3,200
West                          21,700                31,300          53,000                4,800
                             121,500               365,200         486,700               46,100
                               25  %                 75  %          100  %



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


___________________

(1)Land/lots owned included approximately 31,600 and 33,800 owned lots that are
fully developed and ready for home construction at March 31, 2021 and
September 30, 2020, respectively. Land/lots owned also included land held for
development representing 1,400 and 1,600 lots at March 31, 2021 and
September 30, 2020, respectively.
(2)The total remaining purchase price of lots controlled through land and lot
purchase contracts at March 31, 2021 and September 30, 2020 was $13.5 billion
and $9.9 billion, respectively, secured by earnest money deposits of $873.9
million and $653.4 million, respectively. The total remaining purchase price of
lots controlled through land and lot purchase contracts at March 31, 2021 and
September 30, 2020 included $1.5 billion and $1.0 billion, respectively, related
to lot purchase contracts with Forestar, secured by $139.6 million and $98.2
million, respectively, of earnest money.
(3)Lots controlled at March 31, 2021 included approximately 37,100 lots owned or
controlled by Forestar, 20,400 of which our homebuilding divisions have under
contract to purchase and 16,700 of which our homebuilding divisions have a right
of first offer to purchase. Of these, approximately 17,400 lots were in our
Southeast region, 5,600 lots were in our South Central region, 5,300 lots were
in our West region, 4,100 lots were in our East region, 2,700 lots were in our
Southwest region, and 2,000 lots were in our Midwest region. Lots controlled at
September 30, 2020 included approximately 30,400 lots owned or controlled by
Forestar, 14,000 of which our homebuilding divisions had under contract to
purchase and 16,400 of which our homebuilding divisions had a right of first
offer to purchase.
(4)Approximately 12,200 and 14,900 of our homes in inventory were unsold at
March 31, 2021 and September 30, 2020, respectively. At March 31, 2021,
approximately 700 of our unsold homes were completed, of which approximately 100
homes had been completed for more than six months. At September 30, 2020,
approximately 1,900 of our unsold homes were completed, of which approximately
300 homes had been completed for more than six months. Homes in inventory
exclude approximately 1,900 and 1,800 model homes at March 31, 2021 and
September 30, 2020, respectively.

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RESULTS OF OPERATIONS - FORESTAR

In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at
March 31, 2021, we owned 64% of its outstanding shares. Forestar is a publicly
traded residential lot development company with operations in 54 markets across
22 states as of March 31, 2021. 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.)

Results of operations for the Forestar segment for the three and six months ended March 31, 2021 and 2020 were as follows:

                                                       Three Months Ended                      Six Months Ended
                                                           March 31,                              March 31,
                                                     2021                2020               2021              2020
                                                                            (In millions)
Residential lot sales                          $    280.2             $  156.4          $   587.1          $  373.5
Tract sales and other                                 6.9                  2.7                7.1              32.9
   Total revenues                              $    287.1             $  159.1          $   594.2          $  406.4
Cost of sales                                       233.8                136.6              496.7             353.2
Selling, general and administrative expense          16.3                 11.2               31.8              21.7
Gain on sale of assets                                  -                 (0.3)                 -              (0.1)
Other (income) expense                               (0.6)                (2.1)              (1.1)             (4.2)
   Income before income taxes                  $     37.6             $   13.7          $    66.8          $   35.8



At March 31, 2021, Forestar owned directly or controlled through land and lot
purchase contracts approximately 84,500 residential lots, of which approximately
4,800 are fully developed. Approximately 37,100 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 700 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 six
months ended March 31, 2021 and 2020, 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                      Six Months Ended
                                                            March 31,                              March 31,
                                                      2021                2020               2021              2020
                                                                            ($ in millions)
Total residential single-family lots sold            3,588                1,951              7,155             4,373
Residential single-family lots sold to D.R.
Horton                                               3,358                1,906              6,747             4,296
Residential lot sales revenues from sales to
D.R. Horton                                     $    265.3             $  151.9          $   559.5          $  366.0
Tract acres sold to D.R. Horton                         14                    -                 14                36
Tract sales revenues from sales to D.R. Horton  $      3.0             $    

- $ 3.0 $ 7.2




SG&A expense for the three and six months ended March 31, 2021 included charges
of $0.9 million and $2.0 million, respectively, related to the shared services
agreement between Forestar and D.R. Horton whereby D.R. Horton provides Forestar
with certain administrative, compliance, operational and procurement services.
Shared services charges were $1.3 million and $2.6 million, respectively, in the
same periods of fiscal 2020.

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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 six months ended March 31,
2021 and 2020.
                                                            Three Months Ended March 31,                                       Six Months Ended March 31,
                                                  2021                  2020                % Change                2021                  2020                % Change
Number of first-lien loans originated
or brokered by DHI Mortgage for D.R.
Horton homebuyers                                  13,227                 9,740                    36  %             25,949                18,141                    43  %
Number of homes closed by D.R. Horton              19,701                14,539                    36  %             38,440                27,498                    40  %
Percentage of D.R. Horton homes
financed by DHI Mortgage                               67  %                 67  %                                       68  %                 66  %
Number of total loans originated or
brokered by DHI Mortgage for D.R.
Horton homebuyers                                  13,240                 9,792                    35  %             25,978                18,234                    42  %
Total number of loans originated or
brokered by DHI Mortgage                           13,553                10,029                    35  %             26,626                18,752                    42  %
Captive business percentage                            98  %                 98  %                                       98  %                 97  %
Loans sold by DHI Mortgage to third
parties                                            12,371                 8,774                    41  %             25,829                17,519                    47  %



                                                           Three Months Ended March 31,                             Six Months Ended March 31,
                                                    2021             2020             % Change              2021             2020             % Change
                                                                                               (In millions)
Loan origination and other fees                  $   11.7          $  7.6                    54  %       $   22.9          $ 15.0                    53 

%

Gains on sale of mortgage loans and
mortgage servicing rights                           178.6            73.3                   144  %          317.4           147.0                   116  %
Servicing income                                        -               -                     -  %            2.4               -                     -  %
Total mortgage operations revenues                  190.3            80.9                   135  %          342.7           162.0                   112  %
Title policy premiums                                34.8            23.6                    47  %           69.6            45.4                    53  %
Total revenues                                      225.1           104.5                   115  %          412.3           207.4                    99  %
General and administrative expense                  123.7            85.9                    44  %          233.3           163.8                    42  %
Other (income) expense                               (6.3)           (6.1)                    3  %          (12.8)          (11.6)                   10  %
Financial services pre-tax income                $  107.7          $ 24.7                   336  %       $  191.8          $ 55.2                   247  %




                 Financial Services Operating Margin Analysis
                                                                                               Percentages of
                                                                                         Financial Services Revenues
                                                                        Three Months Ended                               Six Months Ended
                                                                            March 31,                                        March 31,
                                                                    2021                      2020                  2021                  2020
General and administrative expense                                         55.0  %               82.2  %               56.6  %               79.0  %
Other (income) expense                                                     (2.8) %               (5.8) %               (3.1) %               (5.6) %
Financial services pre-tax income                                          47.8  %               23.6  %               46.5  %               26.6  %




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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 six
months ended March 31, 2021, the volume of first-lien loans originated or
brokered by DHI Mortgage for our homebuyers increased 36% and 43%, respectively,
from the prior year periods, due to increases in the number of homes closed by
our homebuilding operations of 36% and 40%. In the six month period, a 2%
increase in the percentage of homes closed for which DHI Mortgage handled our
homebuyers' financing also contributed to the increase in loan origination
volume.

Homes closed by our homebuilding operations constituted 98% of DHI Mortgage loan
originations in both the three and six months ended March 31, 2021 compared to
98% and 97%, respectively, in the prior year periods. These percentages reflect
DHI Mortgage's consistent focus on the captive business provided by our
homebuilding operations.

The number of loans sold increased 41% and 47% in the three and six months ended
March 31, 2021, respectively, compared to the prior year periods. Virtually all
of the mortgage loans held for sale on March 31, 2021 were eligible for sale to
the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan
Mortgage Corporation (Freddie Mac) or the Government National Mortgage
Association (Ginnie Mae). During the six months ended March 31, 2021,
approximately 54% of our mortgage loans were sold directly to Fannie Mae or into
securities backed by Ginnie Mae, and 37% were sold to 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 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
mortgages and servicing rights. As a result of the rapid decline in servicing
values at the end of March 2020, we began retaining the servicing rights on a
portion of our loan originations. Servicing values have since improved, and we
sold a portion of our retained mortgage servicing rights in the six months ended
March 31, 2021. We expect to continue retaining some servicing rights prior to
selling them to third parties, typically within six months of loan origination.

Financial Services Revenues and Expenses


Revenues from our mortgage operations increased 135% to $190.3 million and 112%
to $342.7 million in the three and six months ended March 31, 2021,
respectively, from $80.9 million and $162.0 million in the prior year periods,
primarily due to increases of 35% and 42% in loan originations and higher net
gains achieved on the sale of loan originations in the secondary market.
Revenues from our title operations increased 47% to $34.8 million and 53% to
$69.6 million in the three and six months ended March 31, 2021, respectively,
from $23.6 million and $45.4 million in the prior year periods, primarily due to
increases of 41% and 46% in escrow closings.

General and administrative (G&A) expense related to our financial services
operations increased 44% to $123.7 million and 42% to $233.3 million in the
three and six months ended March 31, 2021, respectively, from $85.9 million and
$163.8 million in the prior year periods. The increases were primarily due to
increases in employee related costs to support a higher volume of transactions.
Our financial services operations employed 2,578 and 1,934 employees at
March 31, 2021 and 2020, respectively.

As a percentage of financial services revenues, G&A expense was 55.0% and 56.6%
in the three and six months ended March 31, 2021, respectively, compared to
82.2% and 79.0% in the prior year periods. Our significant increase in loan
volume resulted in better G&A leverage in the current year periods. 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 336% to $107.7
million and 247% to $191.8 million in the three and six months ended March 31,
2021, respectively, from $24.7 million and $55.2 million in the prior year
periods.

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RESULTS OF OPERATIONS - OTHER BUSINESSES

The combined pre-tax income of all of our subsidiaries engaged in other business
activities was $0.1 million and $2.3 million in the three and six months ended
March 31, 2021, respectively, compared to $28.0 million and $57.5 million in the
prior year periods. Income generated by our other businesses can vary
significantly based on the timing of multi-family rental property sales. There
were no multi-family rental properties sold during the current year periods.
There were two multi-family rental properties sold during the prior year
periods, one in November 2019 and another in February 2020, for a total of
$128.5 million with gains on sale totaling $59.4 million.

Our multi-family rental operations develop, construct, lease and own
multi-family residential properties that produce rental income. We primarily
focus on constructing garden style multi-family communities, which typically
accommodate 200 to 400 dwelling units, in high growth suburban markets. After we
complete construction and achieve a stabilized level of leased occupancy, the
property is typically marketed for sale. At March 31, 2021, we had eight
multi-family rental projects under active construction and four projects that
were substantially complete and in the lease-up phase. These 12 projects
represent 3,760 multi-family units, including 2,450 units under active
construction and 1,310 completed units.


RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes


Pre-tax income for the three and six months ended March 31, 2021 was $1.2
billion and $2.2 billion, respectively, compared to $621.3 million and $1.1
billion in the prior year periods. The increases were primarily due to increases
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 six months ended March 31, 2021 was
$246.0 million and $485.1 million, respectively, compared to $137.3 million and
$228.1 million in the prior year periods. Our effective tax rate was 20.8% and
21.9% for the three and six months ended March 31, 2021 compared to 22.1% and
19.9% in the prior year periods. The effective tax rates for all periods include
an expense for state income taxes and tax benefits related to stock-based
compensation and the federal energy efficient homes tax credit. For the six
months ended March 31, 2020, the retroactive reinstatement of the federal energy
efficient homes tax credit reduced our effective tax rate by 2.6%. For the three
and six months ended March 31, 2021, a change in the estimate of homes
qualifying for the fiscal 2020 retroactive extension of the energy efficient tax
credit reduced our effective tax rate by 0.6% and 0.3%, respectively.

Our deferred tax assets, net of deferred tax liabilities, were $150.2 million at
March 31, 2021 compared to $152.4 million at September 30, 2020. We have a
valuation allowance of $7.4 million and $7.5 million at March 31, 2021 and
September 30, 2020, respectively, 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 changes in
economic and market conditions.

Currently, we are increasing our investments in homebuilding inventories and
single-family and 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 returning capital to our
shareholders through dividend payments and repurchases of our common stock. We
are 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 changing conditions and opportunities.

At March 31, 2021, our ratio of debt to total capital (notes payable divided by
stockholders' equity plus notes payable) was 25.7% compared to 26.6% at
September 30, 2020 and 29.2% at March 31, 2020. Our ratio of homebuilding debt
to total capital (homebuilding notes payable divided by stockholders' equity
plus homebuilding notes payable) was 16.8% compared to 17.5% at September 30,
2020 and 19.2% at March 31, 2020. 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 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 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.
At March 31, 2021, $370.6 million remained available under Forestar's shelf
registration statement, of which $76.3 million 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.

Capital Resources - Homebuilding

Cash and Cash Equivalents - At March 31, 2021, cash and cash equivalents of our homebuilding segment totaled $1.9 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. At March 31, 2021, there were no borrowings outstanding and
$143.6 million of letters of credit issued under the revolving credit facility,
resulting in available capacity of $1.45 billion.

In April 2021, our senior unsecured homebuilding revolving credit facility was
amended to extend its maturity date to April 20, 2026. The maturity date may be
extended subject to the approval of lenders holding a majority of the
commitments. The capacity of the homebuilding revolving credit facility was
increased to $2.19 billion with an uncommitted accordion feature that could
increase the size of the facility to $3.0 billion, subject to certain conditions
and availability of additional bank commitments.

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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. There were no
borrowings outstanding under the facility at March 31, 2021. This facility is
not expected to be renewed upon its maturity on May 27, 2021.

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 March 31, 2021, we were in compliance with all of the
covenants, limitations and restrictions of our homebuilding revolving credit
facilities.

Public Unsecured Debt - We have $2.55 billion principal amount of homebuilding
senior notes outstanding as of March 31, 2021 that mature from September 2022
through October 2027. In October 2020, we issued $500 million principal amount
of 1.4% senior notes due October 15, 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 1.6%. In December 2020, we
repaid $400 million principal amount of our 2.55% senior notes at maturity. The
indentures governing our senior notes impose restrictions on the creation of
secured debt and liens. At March 31, 2021, we were in compliance with all of the
limitations and restrictions associated with our public debt obligations.

Repurchases of Common Stock - We repurchased 5.5 million shares of our common stock for $420.2 million during the six months ended March 31, 2021.


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 March 31, 2021, the full amount of the
debt repurchase authorization was remaining, and $115.1 million of the equity
repurchase authorization was remaining. These authorizations have no expiration
date. Effective April 20, 2021, our Board of Directors authorized the repurchase
of up to $1.0 billion of our common stock, replacing the prior authorization.
The authorization has no expiration date.

Capital Resources - Forestar


The achievement of Forestar's 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 March 31, 2021, Forestar had cash and cash equivalents of $167.2 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. The
maturity date of the facility is October 2, 2022. At March 31, 2021, there were
no borrowings outstanding and $46.0 million of letters of credit issued under
the revolving credit facility, resulting in available capacity of $334.0
million.

In April 2021, Forestar's revolving credit facility was amended to extend its
maturity date to April 16, 2025. The maturity date may be extended subject to
the approval of lenders holding a majority of the commitments. The capacity of
Forestar's revolving credit facility was increased to $410 million with an
uncommitted accordion feature that could increase the size of the facility to
$600 million, subject to certain conditions and availability of additional bank
commitments.

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The 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. At March 31, 2021, Forestar was in
compliance with all of the covenants, limitations and restrictions of its
revolving credit facility.

Unsecured Debt - As of March 31, 2021, Forestar had $350 million principal amount of 8.0% senior notes due 2024 and $300 million principal amount of 5.0% senior notes due 2028. The notes were issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, and represent unsecured obligations of Forestar.


In April 2021, Forestar issued $400 million principal amount of 3.85% senior
notes that mature May 15, 2026 with interest payable semiannually. The annual
effective interest rate of the notes after giving effect to the amortization of
financing costs is 4.1%. A portion of the net proceeds from the issuance of the
notes will be used to redeem the $350 million principal amount of 8.0% senior
notes due April 15, 2024 in full, and the remainder of the proceeds will be used
for general corporate purposes.

In April 2021, Forestar delivered notice for the full redemption of its $350
million principal amount of 8.0% senior notes outstanding. The redemption price
of $365.6 million includes a call premium of $14.0 million and accrued and
unpaid interest of $1.6 million. The notes are scheduled to be redeemed May 7,
2021.

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 March 31, 2021, 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 March 31, 2021.

Issuance of Common Stock - During the three months ended March 31, 2021,
Forestar issued 1.0 million shares of common stock under its at-the-market
equity offering program for proceeds of $23.3 million, net of commissions and
other issuance costs. At March 31, 2021, $370.6 million remained available for
issuance under Forestar's shelf registration statement, of which $76.3 million
is reserved for sales under its at-the-market equity offering program.

Capital Resources - Financial Services

Cash and Cash Equivalents - At March 31, 2021, cash and cash equivalents of our financial services operations totaled $94.7 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 February 2021, the mortgage
repurchase facility was amended to increase its capacity and extend its maturity
date to February 18, 2022. The total capacity of the facility is $1.4 billion;
however, the capacity increases, without requiring additional commitments, to
$1.633 billion for approximately 30 days at each quarter end and 45 days at
fiscal year end. The capacity of the facility can also be increased to $1.8
billion, subject to the availability of additional commitments.

As of March 31, 2021, $1.69 billion of mortgage loans held for sale with a
collateral value of $1.66 billion were pledged under the mortgage repurchase
facility. As a result of advance paydowns totaling $454.8 million, DHI Mortgage
had an obligation of $1.2 billion outstanding under the mortgage repurchase
facility at March 31, 2021 at a 2.1% annual interest rate.



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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
March 31, 2021, 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.

Operating Cash Flow Activities


In the six months ended March 31, 2021, net cash used in operating activities
was $154.9 million compared to $395.1 million in the prior year period. Cash
used in operating activities in the current year period primarily consisted of
$249.5 million and $32.3 million of cash used in our Forestar and financial
services segments, respectively, partially offset by $138.0 million of cash
provided by our homebuilding segment.

Cash used to increase construction in progress and finished home inventory was
$1.3 billion in the current year period compared to $724.4 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 $975.2 million compared to $324.2 million in the
prior year period. Of these amounts, $377.2 million and $171.4 million,
respectively, related to Forestar. The most significant source of cash provided
by operating activities in both periods was net income. Also, pursuant to IRS
News Release 2021-43, we have deferred approximately $215 million of federal and
certain state estimated tax payments originally due March 15, 2021 until
June 15, 2021 as a result of the Texas winter storm. This deferral provided $215
million of cash from operations during the six months ended March 31, 2021.

Investing Cash Flow Activities


In the six months ended March 31, 2021, net cash used in investing activities
was $196.1 million compared to $34.6 million in the prior year period. In the
current year period, uses of cash included expenditures related to our rental
operations totaling $173.9 million, an acquisition of the homebuilding
operations of Braselton Homes for $23.0 million and purchases of property and
equipment totaling $30.5 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
$113.0 million and purchases of property and equipment totaling $47.6 million,
partially offset by proceeds from the sale of assets primarily consisting of
$128.5 million related to the sale of two multi-family rental properties.

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 six months ended March 31, 2021, net cash used in financing
activities was $457.2 million, consisting primarily of repayment of $400 million
principal amount of our 2.55% homebuilding senior notes at maturity, payment of
cash dividends totaling $145.6 million and cash used to repurchase shares of our
common stock of $420.2 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 and net advances of $70.9 million on our mortgage repurchase
facility.





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During the six months ended March 31, 2020, net cash provided by financing
activities was $453.0 million, consisting primarily of note proceeds of $800
million from draws on our homebuilding revolving credit facility, our issuance
of $500 million principal amount of 2.5% homebuilding senior notes, Forestar's
issuance of $300 million principal amount of 5.0% senior notes and net advances
of $297.6 million on our mortgage repurchase facility. Note proceeds were
partially offset by repayment of amounts drawn on our homebuilding revolving
credit facility totaling $300 million, 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 shares of our common stock of $360.4 million and payment of
cash dividends totaling $128.7 million.

During each of the first two quarters of fiscal 2021, our Board of Directors
approved a quarterly cash dividend of $0.20 per common share, the most recent of
which was paid on February 25, 2021 to stockholders of record on February 17,
2021. In April 2021, our Board of Directors approved a quarterly cash dividend
of $0.20 per common share, payable on May 20, 2021 to stockholders of record on
May 10, 2021. Cash dividends of $0.175 per common share were approved and paid
in each quarter of fiscal 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 March 31, 2021, we had outstanding letters of credit of $189.6 million and
surety bonds of $2.1 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 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 March 31, 2021, there were a limited number of
contracts with $80.5 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,
$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 March 31, 2021, D.R. Horton, Inc. had outstanding $2.55 billion principal amount of homebuilding senior notes due through October 2027 and no 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

                                                                         March 31,               September 30,
Summarized Balance Sheet Data                                               2021                      2020
                                                                                    (In millions)
Assets
Cash                                                                $         1,832.0          $       2,498.5
Inventories                                                                  12,860.1                 10,921.8
Amount due from Non-Guarantor Subsidiaries                                      618.8                    524.6
Total assets                                                                 17,202.8                 15,503.9
Liabilities & Stockholders' Equity
Notes payable                                                       $         2,616.9          $       2,514.4
Total liabilities                                                             5,489.6                  4,746.9
Stockholders' equity                                                         11,713.2                 10,757.0

                                                                      Six Months Ended             Year Ended
Summarized Statement of Operations Data                                March 31, 2021          September 30, 2020
                                                                                    (In millions)
Revenues                                                            $        11,898.0          $      19,630.0
Cost of sales                                                                 9,009.9                 15,379.2
Selling, general and administrative expense                                     889.3                  1,584.4
Income before income taxes                                                    1,983.4                  2,666.4
Net income                                                                    1,553.6                  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 and was insolvent at the time of the
guarantee, was rendered insolvent by reason of the guarantee, was engaged in a
business or transaction for which its assets constituted unreasonably small
capital to carry on its 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 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, 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.


CRITICAL ACCOUNTING POLICIES

As disclosed in our annual report on Form 10-K for the fiscal year ended
September 30, 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, 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, 2020, our reserves for construction defect claims
include the estimated costs of both known claims and anticipated future claims.
At March 31, 2021 and September 30, 2020, we had reserves for approximately 320
and 260 pending construction defect claims, respectively, and no individual
existing claim was material to our financial statements. During the six months
ended March 31, 2021, we established reserves for approximately 115 new
construction defect claims and resolved 55 construction defect claims for a
total cost of $6.2 million. At March 31, 2020 and September 30, 2019, we had
reserves for approximately 220 and 180 pending construction defect claims,
respectively, and no individual existing claim was material to our financial
statements. During the six months ended March 31, 2020, we established reserves
for approximately 85 new construction defect claims and resolved 45 construction
defect claims for a total cost of $18.3 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.

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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;
•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;
•the 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 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, 2020, including the section entitled
"Risk Factors," which is filed with the SEC.

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