DR HORTON 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 endedSeptember 30, 2021 . 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 inthe United States as measured by number of homes closed. We construct and sell homes through our operating divisions in 105 markets across 33 states, primarily under the names ofD.R. Horton , America's Builder,Emerald Homes ,Express Homes andFreedom Homes . Our common stock is included in the S&P 500 Index and listed on theNew 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 toD.R. Horton, Inc. , aDelaware corporation, and its predecessors and subsidiaries. Our business operations consist of homebuilding, a majority-owned residential lot development company, financial services, rental and other activities. Our homebuilding operations are our core business and primarily include the construction and sale of single-family homes with sales prices generally ranging from$200,000 to more than$1,000,000 , with an average closing price of$377,800 during the nine months endedJune 30, 2022 . Approximately 91% of our home sales revenue in the nine months endedJune 30, 2022 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 inthe 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. Our entry-level homes at affordable price points have experienced strong demand from homebuyers, as this segment of the new home market remains under-served, with low inventory levels relative to demand. AtJune 30, 2022 , we owned 63% of the outstanding shares ofForestar Group Inc. (Forestar), a publicly traded residential lot development company listed on theNew 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 through land purchase contracts. Forestar has made significant investments in land acquisition and development over the last few years to expand its business across our homebuilding operating footprint. Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets.DHI Mortgage , our wholly-owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers.DHI Mortgage originates loans in accordance with purchaser guidelines and sells substantially all of its mortgage production after origination. Our wholly-owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination, underwriting and closing services, primarily related to our homebuilding transactions. Our rental segment consists of multi-family and single-family rental operations. The multi-family rental operations develop, construct, lease and sell residential rental properties. The single-family rental operations primarily construct and lease single-family homes and then market each community for a bulk sale of rental homes. In addition to our homebuilding, Forestar, financial services and rental operations, we engage in other business activities through our subsidiaries. We conduct insurance-related operations, own water rights and other water-related assets, own non-residential real estate including ranch land and improvements and own and operate energy-related assets. The results of these operations are immaterial for separate reporting and therefore are grouped together and presented as other. 30
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OVERVIEW
During the nine months endedJune 30, 2022 , our number of homes closed decreased 1%, while our home sales revenues increased 19% compared to the prior year period. Our consolidated revenues increased 21% to$23.8 billion compared to$19.7 billion in the prior year period. Our pre-tax income was$5.6 billion in the nine months endedJune 30, 2022 compared to$3.6 billion in the prior year period, and our pre-tax operating margin was 23.3% compared to 18.5%. Net income was$4.2 billion in the nine months endedJune 30, 2022 compared to$2.8 billion in the prior year period, and our diluted earnings per share was$11.85 compared to$7.73 . In the trailing twelve months endedJune 30, 2022 , our return on equity (ROE) was 35.1% compared to 29.5% in the prior year period, and our homebuilding return on inventory (ROI) was 41.7% compared to 34.9%. ROE is calculated as net income attributable toD.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. During the first half of fiscal 2022 and for most of the third quarter, demand for our homes remained strong. The supply of homes at affordable price points remains limited across most of our markets, and disruptions in the supply chains for certain building materials and tightness in the labor market have caused our construction cycle to lengthen. InJune 2022 , we began to see a moderation in housing demand as mortgage interest rates increased substantially and inflationary pressures remained elevated. Although these pressures may persist for some time, we believe we are well-positioned to meet these changing market conditions with our affordable product offerings and lot supply, and we will manage our homes in inventory based on the level of homebuyer demand. Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 78% of the lots owned and controlled atJune 30, 2022 compared to 76% at bothSeptember 30, 2021 andJune 30, 2021 . Our relationship with Forestar and expanded relationships with other land developers across the country have allowed us to continue to increase the controlled portion of our lot pipeline. 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. 31
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STRATEGY
Our operating strategy focuses on enhancing long-term value to our shareholders by leveraging our financial and competitive position 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. 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 significant cash balance and strong overall liquidity position while 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.
•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.
•Ensuring that our financial services business provides high quality mortgage and title services to homebuyers efficiently and effectively.
•Increasing our investments 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.
•Opportunistically evaluating potential acquisitions to enhance our operating platform.
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
Homebuilding:
•Homebuilding revenues increased 18% to
•Homes closed decreased 1% to 21,308 homes, while the average closing price of
those homes increased 20% to
•Net sales orders decreased 7% to 16,693 homes, while the value of net sales
orders increased 8% to
•Sales order backlog decreased 9% to 29,244 homes, while the value of sales
order backlog increased 8% to
•Home sales gross margin was 30.1% compared to 25.9%.
•Homebuilding SG&A expense was 6.6% of homebuilding revenues compared to 7.1%.
•Homebuilding pre-tax income was
•Homebuilding pre-tax income was 23.4% of homebuilding revenues compared to 18.8%.
•Homebuilding cash and cash equivalents totaled
•Homebuilding inventories totaled
•Homes in inventory totaled 56,400 compared to 47,800 and 47,300 at
•Owned lots totaled 131,100 compared to 127,800 and 123,900 atSeptember 30, 2021 andJune 30, 2021 , respectively. Lots controlled through purchase contracts increased to 467,100 from 402,500 and 393,200 atSeptember 30, 2021 andJune 30, 2021 , respectively.
•Homebuilding debt was
•Homebuilding debt to total capital was 17.0% compared to 17.8% and 16.0% atSeptember 30, 2021 andJune 30, 2021 , respectively. Net homebuilding debt to total capital was 12.1% compared to 1.7% and 6.4% atSeptember 30, 2021 andJune 30, 2021 , respectively.
Forestar:
•Forestar's revenues decreased 1% to
•Forestar's lots sold decreased 10% to 3,473 compared to 3,858. Lots sold to
•Forestar's pre-tax income was
•Forestar's pre-tax income was 17.1% of revenues compared to 6.7%.
•Forestar's cash and cash equivalents totaled
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•Forestar's inventories totaled $2.1 billion compared to $1.9 billion at both
September 30, 2021 and June 30, 2021 .
•Forestar's owned and controlled lots totaled 97,000 at both June 30, 2022 and
September 30, 2021 and 96,600 at June 30, 2021 . Of these lots, 38,400 were under
contract to sell to or subject to a right of first offer with D.R. Horton
compared to 39,200 and 39,400 at September 30, 2021 and June 30, 2021 ,
respectively.
•Forestar's debt was
•Forestar's debt to total capital was 38.1% compared to 41.0% and 42.1% atSeptember 30, 2021 andJune 30, 2021 , respectively. Forestar's net debt to total capital was 32.8% compared to 35.2% and 37.8% atSeptember 30, 2021 andJune 30, 2021 , respectively. Financial Services:
•Financial services revenues increased 35% to
•Financial services pre-tax income increased 83% to
•Financial services pre-tax income was 50.5% of financial services revenues compared to 37.3%.
Rental:
•Rental revenues were
•Rental pre-tax income was
•Rental inventory totaled
•Single-family rental homes and multi-family rental units closed totaled 382 compared to 69.
Consolidated Results:
•Consolidated revenues increased 21% to
•Consolidated pre-tax income increased 54% to
•Consolidated pre-tax income was 24.8% of consolidated revenues compared to 19.4%.
•Income tax expense was
•Net income attributable to
•Diluted net income per common share attributable to
•Stockholders' equity was
•Book value per common share increased to
•Debt to total capital was 24.9% compared to 26.7% and 24.2% at
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Key financial results for the nine months ended June 30, 2022 , as compared to
the same period of 2021, were as follows:
Homebuilding:
•Homebuilding revenues increased 19% to
•Homes closed decreased 1% to 59,532 homes, while the average closing price of
those homes increased 20% to
•Net sales orders decreased 4% to 62,555 homes, while the value of net sales
orders increased 15% to
•Home sales gross margin was 28.9% compared to 24.9%.
•Homebuilding SG&A expense was 6.9% of homebuilding revenues compared to 7.5%.
•Homebuilding pre-tax income was
•Homebuilding pre-tax income was 21.9% of homebuilding revenues compared to 17.4%.
•Net cash provided by homebuilding operations was
Forestar:
•Forestar's revenues increased 25% to
•Forestar's lots sold increased 25% to 13,777 compared to 11,013. Lots sold to
•Forestar's pre-tax income was
•Forestar's pre-tax income was 14.9% of revenues compared to 9.7%.
Financial Services:
•Financial services revenues increased 10% to
•Financial services pre-tax income increased 10% to
•Financial services pre-tax income was 43.6% of financial services revenues in both periods.
Rental:
•Rental revenues were
•Rental pre-tax income was
•Single-family rental homes and multi-family rental units closed totaled 1,453 compared to 193.
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Consolidated Results:
•Consolidated revenues increased 21% to
•Consolidated pre-tax income increased 53% to
•Consolidated pre-tax income was 23.3% of consolidated revenues compared to 18.5%.
•Income tax expense was
•Net income attributable to
•Diluted net income per common share attributable to
•Net cash used in operations was
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RESULTS OF OPERATIONS - HOMEBUILDING
We conduct our homebuilding operations in the geographic regions, states and
markets listed below. 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.
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State Reporting Region/Market State Reporting Region/Market
Northwest Region South Central Region
Colorado Colorado Springs Arkansas Northwest Arkansas
Denver Oklahoma Oklahoma City
Fort Collins Tulsa
Oregon Bend Texas Austin
Eugene/Springfield Beaumont
Portland/Salem Bryan/College Station
Utah Salt Lake City Corpus Christi
St. George Dallas
Washington Central Washington Fort Worth
Seattle/Tacoma/Everett/Olympia Houston
Spokane Killeen/Temple/Waco
Vancouver Lubbock
Midland/Odessa
Southwest Region New Braunfels/San Marcos
Arizona Phoenix San Antonio
Tucson
California Bakersfield East Region
Bay Area Georgia Atlanta
Fresno/Tulare Augusta
Los Angeles County Savannah
Modesto/Merced/Stockton North Carolina Asheville
Riverside County Charlotte
Sacramento Greensboro/Winston-Salem
San Bernardino County New Bern/Greenville
San Diego County Raleigh/Durham
Hawaii Oahu Wilmington
Nevada Las Vegas South Carolina Charleston
Reno Columbia
New Mexico Albuquerque Greenville/Spartanburg
Hilton Head
Southeast Region Myrtle Beach
Alabama Birmingham Tennessee Chattanooga
Huntsville Knoxville
Mobile/Baldwin County Memphis
Montgomery Nashville
Tuscaloosa
Florida Fort Myers/Naples North Region
Gainesville Delaware Central Delaware
Jacksonville Northern Delaware
Lakeland Illinois Chicago
Melbourne/Vero Beach Indiana Fort Wayne
Miami/Fort Lauderdale Indianapolis
Ocala Northwest Indiana
Orlando Iowa Des Moines
Pensacola/Panama City Iowa City/Cedar Rapids
Port St. Lucie Kentucky Louisville
Tallahassee Maryland Baltimore
Tampa/Sarasota Suburban Washington, D.C.
Volusia County Western Maryland
West Palm Beach Minnesota Minneapolis/St. Paul
Louisiana Baton Rouge Nebraska Omaha
Lake Charles/Lafayette New Jersey Northern New Jersey
Mississippi Gulf Coast Southern New Jersey
Ohio Cincinnati
Columbus
Pennsylvania Central Pennsylvania
Philadelphia
Virginia Northern Virginia
Southern Virginia
West Virginia Eastern West Virginia
38-------------------------------------------------------------------------------- Table of Contents The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three and nine months endedJune 30, 2022 and 2021. During the fourth quarter of fiscal 2021, we reassessed our operating segments and reportable segments and realigned the aggregation of our homebuilding operating segments into six new reportable segments to better allocate our homebuilding operating segments across geographic reporting regions. Segment information for the three and nine months endedJune 30, 2021 has been reclassified to conform to the current presentation. Net Sales Orders (1) Three Months Ended June 30, Net Homes Sold Value (In millions) Average Selling Price % % % 2022 2021 Change 2022 2021 Change 2022 2021 Change Northwest 886 1,086 (18) %$ 532.8 $ 592.7 (10) %$ 601,400 $ 545,800 10 % Southwest 1,967 2,439 (19) % 1,038.1 1,114.8 (7) % 527,800 457,100 15 %South Central 5,176 5,203 (1) % 1,888.3 1,633.9 16 % 364,800 314,000 16 % Southeast 3,979 5,415 (27) % 1,612.7 1,784.1 (10) % 405,300 329,500 23 % East 3,274 2,750 19 % 1,265.8 889.9 42 % 386,600 323,600 19 % North 1,411 1,059 33 % 603.0 433.5 39 % 427,400 409,300 4 % 16,693 17,952 (7) %$ 6,940.7 $ 6,448.9 8 %$ 415,800 $ 359,200 16 % Nine Months Ended June 30, Net Homes Sold Value (In millions) Average Selling Price % % % 2022 2021 Change 2022 2021 Change 2022 2021 Change Northwest 3,456 3,558 (3) %$ 1,958.0 $ 1,779.8 10 %$ 566,600 $ 500,200 13 % Southwest 6,863 7,633 (10) % 3,625.1 3,268.1 11 % 528,200 428,200 23 %South Central 18,366 19,073 (4) % 6,346.3 5,490.2 16 % 345,500 287,900 20 % Southeast 17,222 19,987 (14) % 6,538.5 6,147.3 6 % 379,700 307,600 23 % East 11,019 10,825 2 % 4,133.8 3,376.2 22 % 375,200 311,900 20 % North 5,629 4,353 29 % 2,344.8 1,652.3 42 % 416,600 379,600 10 % 62,555 65,429 (4) %$ 24,946.5 $ 21,713.9 15 %$ 398,800 $ 331,900 20 % Sales Order Cancellations Three Months Ended June 30, Cancelled Sales Orders Value (In millions) Cancellation Rate (2) 2022 2021 2022 2021 2022 2021 Northwest 204 124$ 120.7 $ 66.9 19 % 10 % Southwest 646 346 314.7 143.2 25 % 12 % South Central 1,801 1,232 614.2 363.9 26 % 19 % Southeast 1,450 1,101 522.1 331.3 27 % 17 % East 668 678 248.3 208.4 17 % 20 % North 382 231 156.9 85.9 21 % 18 % 5,151 3,712$ 1,976.9 $ 1,199.6 24 % 17 % Nine Months Ended June 30, Cancelled Sales Orders Value (In millions) Cancellation Rate (2) 2022 2021 2022 2021 2022 2021 Northwest 491 440$ 271.3 $ 215.9 12 % 11 % Southwest 1,535 1,100 726.4 425.3 18 % 13 % South Central 4,590 3,961 1,524.3 1,088.5 20 % 17 % Southeast 3,930 4,301 1,364.6 1,247.9 19 % 18 % East 2,047 2,489 723.5 737.1 16 % 19 % North 986 746 395.7 261.1 15 % 15 % 13,579 13,037$ 5,005.8 $ 3,975.8 18 % 17 % ________________________
(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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The number of net sales orders decreased 7% and 4% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods. The value of net sales orders increased 8% to$6.9 billion (16,693 homes) and 15% to$24.9 billion (62,555 homes) for the three and nine months endedJune 30, 2022 , respectively, compared to$6.4 billion (17,952 homes) and$21.7 billion (65,429 homes) in the prior year periods, due to the increase in our average selling price. The average selling price of net sales orders during the three and nine months endedJune 30, 2022 was$415,800 and$398,800 , respectively, up 16% and 20% from the prior year periods. During the first half of fiscal 2022 and for most of the third quarter, demand for our homes remained strong. We continued restricting our sales order pace during the third quarter in most of our communities to match our longer construction cycles, which have resulted from disruptions in the supply chains for certain building materials and tightness in the labor market. InJune 2022 , we began to see a moderation in demand for our homes as mortgage interest rates increased substantially and inflationary pressures remained elevated. Although these pressures may persist for some time, we believe we are well-positioned to meet these changing market conditions with our affordable product offerings. The number of net sales orders decreased 7% in the three months endedJune 30, 2022 compared to the prior year period. In regions with a decrease in sales order volume, the markets contributing most to the decreases were: theSeattle andPortland markets in the Northwest; theCalifornia andArizona markets in the Southwest; theAustin market in theSouth Central ; and theLouisiana andTampa markets in the Southeast. In regions with an increase in sales order volume, the markets contributing most to the increases were: theMyrtle Beach market in the East and theNew Jersey andMinnesota markets in the North. The number of net sales orders decreased 4% in the nine months endedJune 30, 2022 compared to the prior year period. In regions with a decrease in sales order volume, the markets contributing most to the decreases were: theSeattle andDenver markets in the Northwest; theArizona andCalifornia markets in the Southwest; theAustin andFort Worth markets in theSouth Central ; and theLouisiana ,Tampa andOrlando markets in the Southeast. In regions with an increase in sales order volume, the markets contributing most to the increases were: theMyrtle Beach market in the East and theIndianapolis andOhio markets in the North. Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 24% and 18% in the three and nine months endedJune 30, 2022 , respectively, compared to 17% in both prior year periods. The increase in our cancellation rate in the current quarter primarily reflects the moderation in demand we experienced inJune 2022 as mortgage interest rates increased substantially and inflationary pressures remained elevated. Sales Order Backlog As of June 30, Homes in Backlog Value (In millions) Average Selling Price % % % 2022 2021 Change 2022 2021 Change 2022 2021 Change Northwest 1,045 1,386 (25) %$ 596.4 $ 714.7 (17) %$ 570,700 $ 515,700 11 % Southwest 3,497 4,508 (22) % 1,785.6 1,850.6 (4) % 510,600 410,500 24 % South Central 9,935 10,405 (5) % 3,565.7 3,138.0 14 % 358,900 301,600 19 % Southeast 7,973 9,126 (13) % 3,204.9 2,980.3 8 % 402,000 326,600 23 % East 4,857 4,620 5 % 1,926.2 1,500.9 28 % 396,600 324,900 22 % North 1,937 2,164 (10) % 838.8 837.7 - % 433,000 387,100 12 % 29,244 32,209 (9) %$ 11,917.6 $ 11,022.2 8 %$ 407,500 $ 342,200 19 % 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. 40
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Homes Closed and Home Sales Revenue
Three Months Ended June 30,
Homes Closed Value (In millions) Average Selling Price
% % %
2022 2021 Change 2022 2021 Change 2022 2021 Change
Northwest 1,194 1,348 (11) % $ 673.9 $ 662.5 2 % $ 564,400 $ 491,500 15 %
Southwest 2,539 2,465 3 % 1,288.9 1,020.5 26 % 507,600 414,000 23 %
South Central 6,117 5,575 10 % 2,077.3 1,542.9 35 % 339,600 276,800 23 %
Southeast 5,740 6,558 (12) % 2,111.7 1,960.6 8 % 367,900 299,000 23 %
East 3,782 3,975 (5) % 1,385.4 1,227.9 13 % 366,300 308,900 19 %
North 1,936 1,667 16 % 799.2 625.7 28 % 412,800 375,300 10 %
21,308 21,588 (1) % $ 8,336.4 $ 7,040.1 18 % $ 391,200 $ 326,100 20 %
Nine Months Ended June 30,
Homes Closed Value (In millions) Average Selling Price
% % %
2022 2021 Change 2022 2021 Change 2022 2021 Change
Northwest 3,365 3,716 (9) % $ 1,859.3 $ 1,758.2 6 % $ 552,500 $ 473,100 17 %
Southwest 6,804 6,867 (1) % 3,335.4 2,758.8 21 % 490,200 401,700 22 %
South Central 17,164 16,006 7 % 5,606.0 4,288.9 31 % 326,600 268,000 22 %
Southeast 16,568 17,783 (7) % 5,868.2 5,135.6 14 % 354,200 288,800 23 %
East 10,379 11,062 (6) % 3,677.0 3,301.7 11 % 354,300 298,500 19 %
North 5,252 4,594 14 % 2,146.1 1,666.0 29 % 408,600 362,600 13 %
59,532 60,028 (1) % $ 22,492.0 $ 18,909.2 19 % $ 377,800 $ 315,000 20 %
Home Sales Revenue
Revenues from home sales increased 18% to $8.3 billion (21,308 homes closed) for
the three months ended June 30, 2022 from $7.0 billion (21,588 homes closed) in
the prior year period. Revenues from home sales increased 19% to $22.5 billion
(59,532 homes closed) for the nine months ended June 30, 2022 from $18.9 billion
(60,028 homes closed) in the prior year period. Although home closings in recent
quarters have been negatively impacted by supply chain disruptions, home sales
revenues increased in all of our regions due to an increase in average selling
price.
The number of homes closed decreased 1% in the three months ended June 30, 2022
compared to the prior year period. In regions with an increase in closings
volume, the markets contributing most to the increases were: the Hawaii markets
in the Southwest; the Houston and Dallas markets in the South Central ; and the
Ohio , Chicago and New Jersey markets in the North. In regions with a decrease in
closings volume, the markets contributing most to the decreases were: the
Seattle and Denver markets in the Northwest; the Orlando market in the
Southeast; and the Charlotte and Atlanta markets in the East.
The number of homes closed decreased 1% in the nine months ended June 30, 2022
compared to the prior year period. In regions with a decrease in closings
volume, the markets contributing most to the decreases were: the Seattle market
in the Northwest; the Las Vegas market in the Southwest; the Orlando market in
the Southeast; and the Atlanta and Charlotte markets in the East. In regions
with an increase in closings volume, the markets contributing most to the
increases were: the Dallas and Houston markets in the South Central and the
Chicago and New Jersey markets in the North.
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Homebuilding Operating Margin Analysis
Percentages of Related Revenues
Three Months Ended Nine Months Ended
June 30, June 30,
2022 2021 2022 2021
Gross profit - home sales 30.1 % 25.9 % 28.9 % 24.9 %
Gross profit - land/lot sales and other 36.0 % 62.0 % 34.0 % 28.4 %
Inventory and land option charges (0.1) % (0.1) % (0.1) % (0.1) %
Gross profit - total homebuilding 30.0 % 25.8 % 28.8 % 24.8 %
Selling, general and administrative expense 6.6 % 7.1 % 6.9 % 7.5 %
Other (income) expense - % (0.1) % (0.1) % - %
Homebuilding pre-tax income 23.4 % 18.8 % 21.9 % 17.4 %
Home Sales Gross Profit
Gross profit from home sales increased to $2.5 billion in the three months ended
June 30, 2022 from $1.8 billion in the prior year period and increased 420 basis
points to 30.1% as a percentage of home sales revenues. The percentage increase
resulted from improvements of 460 basis points due to the average selling price
of our homes closed increasing by more than the average cost of those homes and
10 basis points due to a decrease in the amortization of capitalized interest,
partially offset by increased warranty and construction defect costs of 50 basis
points.
Gross profit from home sales increased to $6.5 billion in the nine months ended
June 30, 2022 from $4.7 billion in the prior year period and increased 400 basis
points to 28.9% as a percentage of home sales revenues. The percentage increase
resulted from improvements of 400 basis points due to the average selling price
of our homes closed increasing by more than the average cost of those homes and
20 basis points due to a decrease in the amortization of capitalized interest,
partially offset by increased warranty and construction defect costs of 20 basis
points.
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. As we adjust to current market
conditions, we expect the pace of sales price increases to slow and our
incentive levels to increase from historical lows which would cause our gross
profit margins in future periods to decline.
Land/Lot Sales and Other Revenues
Land/lot sales and other revenues from our homebuilding operations were$11.4 million and$42.0 million in the three and nine months endedJune 30, 2022 , respectively, and$7.1 million and$40.5 million in the comparable periods of fiscal 2021. 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 ofJune 30, 2022 , our homebuilding operations had$32.7 million of land held for sale that we expect to sell in the next twelve months.
Inventory and Land Option Charges
At the end of each quarter, we review the performance and outlook for all of our communities and land inventories for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary. As a result of this review, there were no impairments recorded in our homebuilding segment during the three and nine months endedJune 30, 2022 . There were no impairment charges recorded in the prior year quarter and$5.6 million of impairment charges recorded in our homebuilding segment in the nine months endedJune 30, 2021 . 42
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As we manage our inventory investments across our operating markets to optimize returns and cash flows, we may modify our pricing and incentives, construction and development plans or land sale strategies in individual active communities and land held for development, which could result in the affected communities being evaluated for potential impairment. If the housing market or economic conditions are adversely affected for a prolonged period, we may be required to evaluate additional communities for potential impairment. These evaluations could result in impairment charges which could be significant. During the three and nine months endedJune 30, 2022 , earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were$9.5 million and$23.2 million , respectively, compared to$4.9 million and$10.4 million in the same periods of fiscal 2021.
Selling, General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities increased 10% to$553.2 million and$1.6 billion in the three and nine months endedJune 30, 2022 , respectively, from$500.7 million and$1.4 billion in the prior year periods. SG&A expense as a percentage of homebuilding revenues was 6.6% and 6.9% in the three and nine months endedJune 30, 2022 , respectively, compared to 7.1% and 7.5% in the prior year periods. Employee compensation and related costs were$445.7 million and$1.3 billion in the three and nine months endedJune 30, 2022 , respectively, compared to$411.6 million and$1.1 billion in the same periods of fiscal 2021. Employee compensation and related costs represented 81% and 82% of SG&A costs in the three and nine months endedJune 30, 2022 , respectively, compared to 82% and 81% in the prior year periods. These costs increased 8% and 11% in the three and nine months endedJune 30, 2022 , respectively, from the prior year periods. Our homebuilding operations employed 9,590 and 8,203 people atJune 30, 2022 and 2021, respectively.
We attempt to control our homebuilding 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$27.9 million and$78.3 million in the three and nine months endedJune 30, 2022 , respectively, compared to$22.7 million and$69.7 million in the prior year periods. Interest charged to cost of sales was 0.6% of total cost of sales (excluding inventory and land option charges) in both the three and nine months endedJune 30, 2022 compared to 0.7% in both prior year periods.
Other Income
Other income, net of other expenses, included in our homebuilding operations was$3.7 million and$11.6 million in the three and nine months endedJune 30, 2022 , respectively, compared to$4.9 million and$8.7 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. 43
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Homebuilding Results by
Three Months Ended June 30,
2022 2021
Homebuilding Homebuilding
Homebuilding Pre-tax % of Homebuilding Pre-tax % of
Revenues Income (1) Revenues Revenues Income (1) Revenues
(In millions)
Northwest $ 674.0 $ 161.0 23.9 % $ 662.6 $ 146.7 22.1 %
Southwest 1,289.2 288.3 22.4 % 1,021.7 167.5 16.4 %
South Central 2,080.4 527.2 25.3 % 1,547.5 299.0 19.3 %
Southeast 2,118.9 532.4 25.1 % 1,961.3 396.1 20.2 %
East 1,385.8 309.9 22.4 % 1,228.0 222.8 18.1 %
North 799.5 135.9 17.0 % 626.1 92.5 14.8 %
$ 8,347.8 $ 1,954.7 23.4 % $ 7,047.2 $ 1,324.6 18.8 %
Nine Months Ended June 30,
2022 2021
Homebuilding Homebuilding
Homebuilding Pre-tax % of Homebuilding Pre-tax % of
Revenues Income (1) Revenues Revenues Income (1) Revenues
(In millions)
Northwest $ 1,879.9 $ 421.0 22.4 % $ 1,759.1 $ 327.4 18.6 %
Southwest 3,335.9 674.2 20.2 % 2,773.3 413.2 14.9 %
South Central 5,613.1 1,297.5 23.1 % 4,295.7 790.9 18.4 %
Southeast 5,876.4 1,430.1 24.3 % 5,146.9 960.5 18.7 %
East 3,680.1 778.1 21.1 % 3,306.6 578.7 17.5 %
North 2,148.6 339.7 15.8 % 1,668.1 228.6 13.7 %
$ 22,534.0 $ 4,940.6 21.9 % $ 18,949.7 $ 3,299.3 17.4 %
______________
(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.
Northwest Region - Homebuilding revenues increased 2% and 7% in the three and
nine months ended June 30, 2022 , respectively, compared to the prior year
periods, due to increases in the average selling price of homes closed in all
markets. The region generated pre-tax income of $161.0 million and $421.0
million in the three and nine months ended June 30, 2022 , respectively, compared
to $146.7 million and $327.4 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 190 and 400 basis points in the three and nine months
ended June 30, 2022 , 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 20 basis points in the three month period and were
unchanged in the nine month period ended June 30, 2022 compared to the prior
year periods.
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Southwest Region - Homebuilding revenues increased 26% and 20% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets. The region generated pre-tax income of$288.3 million and$674.2 million in the three and nine months endedJune 30, 2022 , respectively, compared to$167.5 million and$413.2 million in the prior year periods. Home sales gross profit percentage increased by 500 and 440 basis points in the three and nine months endedJune 30, 2022 , 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 100 and 90 basis points in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.South Central Region - Homebuilding revenues increased 34% and 31% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets. The region generated pre-tax income of$527.2 million and$1.3 billion in the three and nine months endedJune 30, 2022 , respectively, compared to$299.0 million and$790.9 million in the prior year periods. Home sales gross profit percentage increased by 510 and 380 basis points in the three and nine months endedJune 30, 2022 , 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 100 and 90 basis points in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.Southeast Region - Homebuilding revenues increased 8% and 14% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, due to the increases in the average selling price of homes closed in all markets. The region generated pre-tax income of$532.4 million and$1.4 billion in the three and nine months endedJune 30, 2022 , respectively, compared to$396.1 million and$960.5 million in the prior year periods. Home sales gross profit percentage increased by 500 basis points in both the three and nine months endedJune 30, 2022 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 10 and 50 basis points in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.East Region - Homebuilding revenues increased 13% and 11% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, due to increases in the average selling price of homes closed in all markets. The region generated pre-tax income of$309.9 million and$778.1 million in the three and nine months endedJune 30, 2022 , respectively, compared to$222.8 million and$578.7 million in the prior year periods. Home sales gross profit percentage increased by 400 and 340 basis points in the three and nine months endedJune 30, 2022 , 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 30 and 20 basis points in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to the increase in homebuilding revenues.North Region - Homebuilding revenues increased 28% and 29% in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to increases in the average selling price of homes closed in most markets. The region generated pre-tax income of$135.9 million and$339.7 million in the three and nine months endedJune 30, 2022 , respectively, compared to$92.5 million and$228.6 million in the prior year periods. Home sales gross profit percentage increased by 200 and 190 basis points in the three and nine months endedJune 30, 2022 , respectively, compared to the prior year periods, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 30 basis points in both the three and nine months endedJune 30, 2022 compared to the prior year periods, primarily due to the increase in homebuilding revenues. 45
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HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY
We routinely enter into contracts to purchase land or developed residential lots at predetermined prices on a defined schedule commensurate with planned development or anticipated new home demand. At the time of purchase, the undeveloped land is generally vested with the rights to begin development or construction work, and we plan and coordinate the development of our land into residential lots for use in our homebuilding business. We manage our inventory of owned land and lots and homes under construction relative to demand in each of our markets, including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory. Our homebuilding segment's inventories atJune 30, 2022 andSeptember 30, 2021 are summarized as follows: June 30, 2022 Residential Land/Lots Construction in Developed and Progress and Under Land Held Land Held Finished Homes Development for Development for Sale Total Inventory (In millions) Northwest$ 874.6 $ 880.8 $ -$ 1.7 $ 1,757.1 Southwest 1,573.7 1,381.9 7.1 22.7 2,985.4 South Central 2,822.7 1,585.6 0.2 0.3 4,408.8 Southeast 2,722.2 1,330.7 13.2 0.6 4,066.7 East 1,593.6 1,044.4 - - 2,638.0 North 1,256.3 607.6 - 7.0 1,870.9 Corporate and unallocated (1) 130.9 78.4 0.3 0.4 210.0$ 10,974.0 $ 6,909.4 $ 20.8$ 32.7 $ 17,936.9 September 30, 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) Northwest $ 609.6$ 685.4 $ -$ 12.5 $ 1,307.5 Southwest 1,113.5 1,315.8 6.9 9.4 2,445.6 South Central 1,977.4 1,501.5 0.4 - 3,479.3 Southeast 2,002.4 1,160.1 16.1 - 3,178.6 East 1,124.6 792.3 1.3 1.4 1,919.6 North 901.4 460.4 5.3 1.8 1,368.9 Corporate and unallocated (1) 119.1 88.5 0.4 0.3 208.3$ 7,848.0 $ 6,004.0 $ 30.4$ 25.4 $ 13,907.8 __________
(1)Corporate and unallocated inventory consists primarily of capitalized interest and property taxes.
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Our land and lot position and homes in inventory at
June 30, 2022
Lots Controlled
Through Total
Land and Lot Land/Lots Homes
Land/Lots Purchase Owned and in
Owned (1) Contracts (2)(3) Controlled Inventory (4)
Northwest 10,500 37,300 47,800 3,300
Southwest 21,600 39,700 61,300 6,600
South Central 38,800 69,200 108,000 16,300
Southeast 25,700 142,200 167,900 16,100
East 22,000 110,800 132,800 8,300
North 12,500 67,900 80,400 5,800
131,100 467,100 598,200 56,400
22 % 78 % 100 %
September 30, 2021
Lots Controlled
Through Total
Land and Lot Land/Lots Homes
Land/Lots Purchase Owned and in
Owned (1) Contracts (2)(3) Controlled Inventory (4)
Northwest 9,000 31,400 40,400 2,600
Southwest 22,800 34,300 57,100 5,500
South Central 42,800 79,000 121,800 14,000
Southeast 26,700 125,500 152,200 13,600
East 17,300 83,100 100,400 7,300
North 9,200 49,200 58,400 4,800
127,800 402,500 530,300 47,800
24 % 76 % 100 %
___________________
(1)Land/lots owned included approximately 31,900 and 30,800 owned lots that are
fully developed and ready for home construction at June 30, 2022 and
September 30, 2021 , respectively. Land/lots owned also included land held for
development representing 400 and 1,300 lots at June 30, 2022 and September 30,
2021 , respectively.
(2)The total remaining purchase price of lots controlled through land and lot
purchase contracts at June 30, 2022 and September 30, 2021 was $20.2 billion and
$15.5 billion , respectively, secured by earnest money deposits of $1.6 billion
and $1.1 billion , respectively. The total remaining purchase price of lots
controlled through land and lot purchase contracts at June 30, 2022 and
September 30, 2021 included $1.5 billion and $1.6 billion , respectively, related
to lot purchase contracts with Forestar, secured by $144.9 million and $151.0
million , respectively, of earnest money.
(3)Lots controlled at June 30, 2022 included approximately 38,400 lots owned or
controlled by Forestar, 19,300 of which our homebuilding divisions have under
contract to purchase and 19,100 of which our homebuilding divisions have a right
of first offer to purchase. Of these, approximately 14,800 lots were in our
Southeast region, 7,400 lots were in our East region, 5,800 lots were in our
Southwest region, 5,200 lots were in our South Central region, 4,200 lots were
in our North region and 1,000 lots were in our Northwest region. Lots controlled
at September 30, 2021 included approximately 39,200 lots owned or controlled by
Forestar, 21,000 of which our homebuilding divisions had under contract to
purchase and 18,200 of which our homebuilding divisions had a right of first
offer to purchase.
(4)Approximately 27,200 and 21,700 of our homes in inventory were unsold at
June 30, 2022 and September 30, 2021 , respectively. At June 30, 2022 ,
approximately 1,400 of our unsold homes were completed, of which approximately
60 homes had been completed for more than six months. At September 30, 2021 ,
approximately 900 of our unsold homes were completed, of which approximately 100
homes had been completed for more than six months. Homes in inventory exclude
approximately 1,800 model homes at both June 30, 2022 and September 30, 2021 .
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RESULTS OF OPERATIONS - FORESTAR
In fiscal 2018, we acquired 75% of the outstanding shares of Forestar and at
June 30, 2022 , we owned 63% of its outstanding shares. Forestar is a publicly
traded residential lot development company with operations in 52 markets across
22 states as of June 30, 2022 . Forestar's segment results are presented on their
historical cost basis, consistent with the manner in which management evaluates
segment performance. (See Note B to the accompanying financial statements for
additional Forestar segment information.)
Results of operations for the Forestar segment for the three and nine months
ended
Three Months Ended Nine Months Ended
June 30, June 30,
2022 2021 2022 2021
(In millions)
Total revenues $ 308.5 $ 312.9 $ 1,137.7 $ 907.1
Cost of land/lot sales and other 233.6 256.4 895.9 752.2
Inventory and land option charges 1.0 0.7 7.0 1.6
Total cost of sales $ 234.6 $ 257.1 $ 902.9 $ 753.8
Selling, general and administrative expense 24.1 16.9 69.9 48.7
Loss on extinguishment of debt - 18.1 - 18.1
Other (income) expense (2.9) (0.3) (4.5) (1.4)
Income before income taxes $ 52.7 $ 21.1 $ 169.4 $ 87.9
Revenues are primarily derived from sales of single-family residential lots to
local, regional and national homebuilders. During the three and nine months
ended June 30, 2022 , Forestar sold 3,473 and 13,777 single-family lots,
respectively, compared to 3,858 and 11,013 single-family lots in the prior year
periods. Of the total lots sold, Forestar sold 3,038 lots to D.R. Horton for
$258.1 million and 11,823 lots for $977.8 million during the three and nine
months ended June 30, 2022 , respectively, compared to 3,719 lots for $300.2
million and 10,466 lots for $859.8 million in the prior year periods.
SG&A expense for the three and nine months ended June 30, 2022 included charges
of $1.1 million and $3.1 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 $1.0 million and $2.9 million , respectively, in the
same periods of fiscal 2021.
At June 30, 2022 , Forestar owned directly or controlled through land and lot
purchase contracts approximately 97,000 residential lots, of which 5,300 are
fully developed. Approximately 38,400 of these lots are under contract to sell
to D.R. Horton or subject to a right of first offer under the master supply
agreement with D.R. Horton , and 1,000 of these lots are under contract to sell
to other builders.
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RESULTS OF OPERATIONS - FINANCIAL SERVICES
The following tables and related discussion set forth key operating and financial data for our financial services operations, comprisingDHI Mortgage and our subsidiary title companies, for the three and nine months endedJune 30, 2022 and 2021. Three Months Ended June 30, Nine Months Ended June 30, 2022 2021 % Change 2022 2021 % Change Number of first-lien loans originated or brokered byDHI Mortgage for D.R. Horton homebuyers 14,772 14,313 3 % 40,412 40,262 - % Number of homes closed by D.R. Horton 21,308 21,588 (1) % 59,532 60,028 (1) % Percentage ofD.R. Horton homes financed by DHI Mortgage 69 % 66 % 68 % 67 % Number of total loans originated or brokered byDHI Mortgage for D.R. Horton homebuyers 14,783 14,337 3 % 40,465 40,315 - % Total number of loans originated or brokered by DHI Mortgage 15,007 14,668 2 % 41,198 41,294 - % Captive business percentage 99 % 98 % 98 % 98 % Loans sold byDHI Mortgage to third parties 15,651 15,261 3 % 41,249 41,090 - % Three Months Ended June 30, Nine Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (In millions) Loan origination and other fees$ 13.6 $ 12.9 5 %$ 34.6 $ 35.8 (3) % Gains on sale of mortgage loans and mortgage servicing rights 195.3 135.4 44 % 497.3 453.0 10 % Servicing income 0.8 0.8 - % 1.8 3.1 (42) % Total mortgage operations revenues 209.7 149.1 41 % 533.7 491.9 8 % Title policy premiums 44.6 39.6 13 % 127.1 109.2 16 % Total revenues 254.3 188.7 35 % 660.8 601.1 10 % General and administrative expense 137.3 127.0 8 % 400.6 360.4 11 % Other (income) expense (11.3) (8.6) 31 % (28.0) (21.4) 31 % Financial services pre-tax income$ 128.3 $ 70.3 83 %$ 288.2 $ 262.1 10 % Financial Services Operating Margin Analysis Percentages of Financial Services Revenues Three Months Ended Nine Months Ended June 30, June 30, 2022 2021 2022 2021 General and administrative expense 54.0 % 67.3 % 60.6 % 60.0 % Other (income) expense (4.4) % (4.6) % (4.2) % (3.6) % Financial services pre-tax income 50.5 % 37.3 % 43.6 % 43.6 % 49
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Mortgage Loan Activity
The volume of loans originated by our mortgage operations is directly related to the number of homes closed by our homebuilding operations. In the three and nine months endedJune 30, 2022 , while the number of homes closed by our homebuilding operations decreased slightly from the prior year periods, the volume of first-lien loans originated or brokered byDHI Mortgage for our homebuyers increased slightly due to an increase in the percentage of homes closed for whichDHI Mortgage handled our homebuyers' financing. Homes closed by our homebuilding operations constituted 99% and 98% ofDHI Mortgage loan originations in the three and nine months endedJune 30, 2022 , respectively, compared to 98% in both prior year periods. These percentages reflectDHI Mortgage's consistent focus on the captive business provided by our homebuilding operations. The number of loans sold increased 3% in the three month period and were essentially unchanged in the nine month period endedJune 30, 2022 compared to the prior year periods. Virtually all of the mortgage loans held for sale onJune 30, 2022 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or theGovernment National Mortgage Association (Ginnie Mae ). During the nine months endedJune 30, 2022 , approximately 67% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed byGinnie Mae , and 24% were sold to one other major financial entity. Changes in market conditions could result in a greater concentration of our mortgage sales in future periods to fewer financial entities and directly to Fannie Mae, Freddie Mac orGinnie Mae , and we may need to make other adjustments to our mortgage operations.
Financial Services Revenues and Expenses
Revenues from our mortgage operations increased 41% to$209.7 million and 8% to$533.7 million in the three and nine months endedJune 30, 2022 , respectively, from$149.1 million and$491.9 million in the prior year periods, primarily due to significantly higher interest rate lock commitment volume, and to a lesser extent from an increase in our average loan amount. Revenues from our title operations increased 13% to$44.6 million and 16% to$127.1 million in the three and nine months endedJune 30, 2022 , respectively, from$39.6 million and$109.2 million in the prior year periods, primarily due to an increase in the average premium collected on closing transactions due to higher sales prices of homes closed by our homebuilding operations, as well as expansion of our title insurance operations. General and administrative (G&A) expense related to our financial services operations increased 8% to$137.3 million and 11% to$400.6 million in the three and nine months endedJune 30, 2022 , respectively, from$127.0 million and$360.4 million in the prior year periods. As a percentage of financial services revenues, G&A expense was 54.0% and 60.6% in the three and nine months endedJune 30, 2022 , respectively, compared to 67.3% and 60.0% in the prior year periods. Fluctuations in financial services G&A expense as a percentage of revenues can occur because some components of revenue fluctuate differently than loan volumes, and some expenses are not directly related to mortgage loan volume or to changes in the amount of revenue earned. Our financial services operations employed 3,069 and 2,755 people atJune 30, 2022 and 2021, respectively.
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 increase from increased interest rate lock commitments and from title operations during the current quarter, pre-tax income from our financial services operations increased 10% to$288.2 million in the nine months endedJune 30, 2022 from$262.1 million in the prior year period. 50
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RESULTS OF OPERATIONS - RENTAL
Our rental segment consists of multi-family and single-family rental operations. The multi-family rental operations develop, construct, lease and sell residential rental properties, with a primary focus on constructing garden style multi-family rental communities typically accommodating 200 to 400 dwelling units in high growth suburban markets. The single-family rental operations primarily construct and lease single-family homes and then market each community for a bulk sale of rental homes. Multi-family and single-family rental property sales are recognized as revenues, and rental income is recognized as other income. Results of operations for the rental segment for the three and nine months endedJune 30, 2022 and 2021 were as follows: Three Months Ended Nine Months Ended June 30, June 30, 2022 2021 2022 2021 (In millions) Revenues Single-family rental$ 39.5 $ 23.1 $ 292.7 $ 54.9 Multi-family rental and other 70.2 - 196.4 - Total revenues 109.7 23.1 489.1 54.9 Cost of sales Single-family rental 16.5 11.7 130.3 29.6 Multi-family rental and other 34.5 - 95.9 - Total cost of sales 51.0 11.7 226.2 29.6 Selling, general and administrative expense 22.8 8.8 64.2 29.6 Other (income) expense (6.7) (7.3) (16.4) (16.3) Income before income taxes$ 42.6 $ 9.9 $ 215.1 $ 12.0 During the three months endedJune 30, 2022 , we sold one multi-family rental property (298 total units) for$69.3 million , and during the nine months endedJune 30, 2022 , we sold three multi-family rental properties (775 total units) for$195.5 million . There were no sales of multi-family rental properties during the prior year periods. During the three months endedJune 30, 2022 , we sold one single-family rental property (84 total homes) for$39.5 million , and during the nine months endedJune 30, 2022 , we sold six single-family rental properties (678 total homes) for$292.7 million . There was one single-family rental property (69 total homes) sold for$23.1 million during the prior year quarter and two properties (193 total homes) sold for$54.9 million in the prior year nine month period. AtJune 30, 2022 , our rental property inventory of$2.0 billion included$692.0 million of inventory related to our multi-family rental operations and$1.3 billion of inventory related to our single-family rental operations. AtJune 30, 2022 , we had 20 multi-family rental properties, consisting of 5,810 units, under active construction and one community, consisting of 300 units, that was substantially complete and in the lease-up phase. AtJune 30, 2022 , we had 115 single-family rental properties that included 7,710 homes and finished lots, of which 2,390 homes were completed, and 4,340 expected lots that were unimproved or under development.
At
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RESULTS OF OPERATIONS - OTHER BUSINESSES
In addition to our homebuilding, Forestar, financial services and rental
operations, we engage in other business activities through our subsidiaries. We
conduct insurance-related operations, own water rights and other water-related
assets, own non-residential real estate including ranch land and improvements
and own and operate energy-related assets. The pre-tax income of all of our
subsidiaries engaged in other business activities was $16.0 million and $40.2
million in the three and nine months ended June 30, 2022 , respectively, compared
to $10.1 million and $23.0 million in the prior year periods.
RESULTS OF OPERATIONS - CONSOLIDATED
Income before Income Taxes
Pre-tax income for the three and nine months endedJune 30, 2022 was$2.2 billion and$5.6 billion , respectively, compared to$1.4 billion and$3.6 billion in the prior year periods. The increase was primarily due to an increase in pre-tax income generated by our homebuilding operations as a result of higher revenues from increased average selling prices and an increase in home sales gross margin. Income Taxes Our income tax expense for the three and nine months endedJune 30, 2022 was$524.0 million and$1.3 billion , respectively, compared to$299.1 million and$784.1 million in the prior year periods. Our effective tax rate was 24.0% and 23.7% for the three and nine months endedJune 30, 2022 , respectively, compared to 21.1% and 21.6% 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. The effective tax rates for the three and nine months endedJune 30, 2022 are higher than the prior year periods due to the expiration of the federal energy efficient homes tax credit for homes closed afterDecember 31, 2021 . Our deferred tax assets, net of deferred tax liabilities, were$177.7 million atJune 30, 2022 compared to$159.5 million atSeptember 30, 2021 . We have a valuation allowance of$20.3 million and$4.2 million atJune 30, 2022 andSeptember 30, 2021 , respectively, related to deferred tax assets for net operating loss (NOL) and tax credit 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 and tax credit 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. 52
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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. We have continued to increase our investments in homebuilding inventories and single-family and multi-family rental properties to expand our operations and grow our revenues and profitability. We are also returning capital to our shareholders through dividend payments and repurchases of our common stock. We are maintaining significant homebuilding cash balances and liquidity to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities. As ofJune 30, 2022 , we had outstanding notes payable with varying maturities totaling an aggregate principal amount of$6.0 billion , of which$2.2 billion is payable within 12 months and includes$1.4 billion outstanding under the mortgage repurchase facility. AtJune 30, 2022 , our ratio of debt to total capital (notes payable divided by stockholders' equity plus notes payable) was 24.9% compared to 26.7% atSeptember 30, 2021 and 24.2% atJune 30, 2021 . Our net debt to total capital (notes payable net of cash divided by stockholders' equity plus notes payable net of cash) was 19.3% atJune 30, 2022 compared to 12.9% atSeptember 30, 2021 and 15.2% andJune 30, 2021 . AtJune 30, 2022 , our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders' equity plus homebuilding notes payable) was 17.0% compared to 17.8% atSeptember 30, 2021 and 16.0% atJune 30, 2021 . Our net homebuilding debt to total capital (homebuilding notes payable net of cash divided by stockholders' equity plus homebuilding notes payable net of cash) was 12.1% atJune 30, 2022 compared to 1.7% atSeptember 30, 2021 and 6.4% atJune 30, 2021 . Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 30%, and we expect it to remain significantly lower than 30% through the remainder of fiscal 2022 and during fiscal 2023. We believe that the ratio of homebuilding debt to total capital is useful in understanding the leverage employed in our homebuilding operations and comparing our capital structure with other homebuilders. We exclude the debt of Forestar, DRH Rental and our financial services business because they are separately capitalized and not guaranteed by our parent company or any of our homebuilding entities. AtJune 30, 2022 , we had outstanding letters of credit of$244.7 million and surety bonds of$2.7 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. 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 and liquidity 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 theSecurities and Exchange Commission (SEC) inJuly 2021 , 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 theSEC inOctober 2021 , registering$750 million of equity securities, of which$300 million was reserved for sales under its at-the-market equity offering program that became effective inNovember 2021 . AtJune 30, 2022 ,$748.2 million remained available for issuance under Forestar's shelf registration statement, of which$298.2 million was reserved for sales under its at-the-market equity offering program. As market conditions permit, we may issue new debt or equity securities through the capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity. We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facility and ability to access the capital markets or obtain additional bank financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations for the next 12 months and thereafter for the foreseeable future.
Capital Resources - Homebuilding
Cash and Cash Equivalents - At
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Bank Credit Facility - We have a$2.19 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to$3.0 billion , subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the total revolving credit commitments. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility isApril 20, 2026 . Borrowings and repayments under the facility totaled$2.5 billion and$2.1 billion , respectively, during the nine months endedJune 30, 2022 . AtJune 30, 2022 , there were$400 million of borrowings outstanding at a 4.8% annual interest rate and$188.7 million of letters of credit issued under the revolving credit facility, resulting in available capacity of$1.60 billion . Our homebuilding revolving credit facility imposes restrictions on our operations and activities, including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level. 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. The credit agreement governing the facility imposes restrictions on the creation of secured debt and liens. AtJune 30, 2022 , we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility. Public Unsecured Debt - We have$3.15 billion principal amount of homebuilding senior notes outstanding as ofJune 30, 2022 that mature fromSeptember 2022 throughOctober 2027 . The indentures governing our senior notes impose restrictions on the creation of secured debt and liens. AtJune 30, 2022 , we were in compliance with all of the limitations and restrictions associated with our public debt obligations.
Our homebuilding revolving credit facility and senior notes are guaranteed by
Debt and Stock Repurchase Authorizations - InJuly 2019 , our Board of Directors authorized the repurchase of up to$500 million of debt securities. InApril 2022 , our Board of Directors authorized the repurchase of up to$1.0 billion of our common stock, replacing the prior stock repurchase authorization. During the nine months endedJune 30, 2022 , we repurchased 10.5 million shares of our common stock for$854.2 million . AtJune 30, 2022 , the full amount of the debt repurchase authorization was remaining, and$690.0 million of the stock repurchase authorization was remaining. These authorizations have no expiration date.
Capital Resources - Forestar
The achievement of Forestar's long-term growth objectives will depend on its ability to obtain financing and generate cash flows from operations 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. AtJune 30, 2022 , Forestar's ratio of debt to total capital (notes payable divided by stockholders' equity plus notes payable) was 38.1% compared to 41.0% atSeptember 30, 2021 and 42.1% atJune 30, 2021 . Forestar's ratio of net debt to total capital (notes payable net of cash divided by stockholders' equity plus notes payable net of cash) was 32.8% compared to 35.2% atSeptember 30, 2021 and 37.8% atJune 30, 2021 .
Cash and Cash Equivalents - At
Bank Credit Facility - Forestar has a$410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to$600 million , subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of$100 million and 50% of the total revolving credit commitments. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of Forestar's real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility isApril 16, 2025 . AtJune 30, 2022 , there were no borrowings outstanding and$56.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of$354.0 million . 54
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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. Unsecured Debt - As ofJune 30, 2022 , Forestar had$700 million principal amount of senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, which represent unsecured obligations of Forestar. These notes include$400 million principal amount of 3.85% senior notes that mature inMay 2026 and$300 million principal amount of 5.0% senior notes that mature inMarch 2028 .
Forestar's revolving credit facility and its senior notes are not guaranteed by
Debt Repurchase Authorization - InApril 2020 , Forestar's Board of Directors authorized the repurchase of up to$30 million of Forestar's debt securities. All of the$30 million authorization was remaining atJune 30, 2022 , and the authorization has no expiration date. Issuance of Common Stock - During the nine months endedJune 30, 2022 , Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of$1.7 million , net of commissions and other issuance costs totaling$0.1 million . AtJune 30, 2022 ,$748.2 million remained available for issuance under Forestar's shelf registration statement, of which$298.2 million was reserved for sales under its at-the-market equity offering program.
Capital Resources - Financial Services
Cash and Cash Equivalents - At
Mortgage Repurchase Facility - Our mortgage subsidiary,DHI Mortgage , has a mortgage repurchase facility that provides financing and liquidity toDHI Mortgage by facilitating purchase transactions in whichDHI 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. InFebruary 2022 , the mortgage repurchase facility was amended to increase its capacity and extend its maturity date toFebruary 17, 2023 . The total capacity of the facility is$1.6 billion ; however, the capacity automatically increases during certain higher volume periods and can be further increased through additional commitments. The total capacity of the facility atJune 30, 2022 was$2.1 billion .
As of
The mortgage repurchase facility is not guaranteed byD.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, Forestar or rental operations. The facility contains financial covenants as to the mortgage subsidiary's minimum required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants are measured and reported to the lenders monthly. AtJune 30, 2022 ,DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility. 55
-------------------------------------------------------------------------------- Table of Contents 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.
Capital Resources - Rental
Cash and Cash Equivalents - AtJune 30, 2022 , cash and cash equivalents of our rental segment totaled$133.9 million . During fiscal 2022, we continued to increase the investment in our rental operations. The inventory in our rental segment totaled$2.0 billion atJune 30, 2022 compared to$840.9 million atSeptember 30, 2021 and$760.2 million atJune 30, 2021 . Bank Credit Facility - InMarch 2022 , our rental subsidiary, DRH Rental, entered into a$625 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to$1.25 billion , subject to certain conditions and availability of additional bank commitments. OnMarch 17, 2022 , DRH Rental utilized the accordion feature and increased the size of the facility to$750 million through an additional commitment. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of$100 million and 50% of the total revolving credit commitments. The maturity date of the facility isMarch 4, 2026 . Availability under the revolving credit facility is subject to a borrowing base calculation based on the book value of DRH Rental's real estate assets and unrestricted cash. AtJune 30, 2022 , the borrowing base limited the available capacity under the facility to$649.6 million . AtJune 30, 2022 , there were$175 million of borrowings outstanding at a 3.1% annual interest rate and no letters of credit issued under the facility, resulting in available capacity of$474.6 million . The revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require DRH Rental to maintain a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. 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. AtJune 30, 2022 , DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility. DRH Rental's revolving credit facility is not guaranteed byD.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, Forestar or financial services operations.
Operating Cash Flow Activities
In the nine months endedJune 30, 2022 , net cash used in operating activities was$562.8 million compared to$34.5 million in the prior year period. Cash used in operating activities in the current year period primarily consisted of$826.4 million and$10.2 million used in our rental and Forestar segments, respectively, partially offset by$150.1 million and$124.5 million of cash provided by our financial services and homebuilding segments, respectively. Cash used to increase construction in progress and finished home inventory was$3.1 billion in the current year period compared to$1.7 billion in the prior year period, reflecting an increase in our homes in inventory as well as the elongation of our construction cycle in the current period. Cash used to increase residential land and lots was$1.0 billion in the current year period compared to$1.3 billion in the prior year period. Of these amounts,$170.3 million and$541.7 million , respectively, related to Forestar.
During the nine months ended
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Investing Cash Flow Activities
In the nine months endedJune 30, 2022 , net cash used in investing activities was$372.9 million compared to$206.9 million in the prior year period. In the current year period, uses of cash included the acquisition ofVidler Water Resources, Inc. for$271.5 million , net of the cash acquired, and purchases of property and equipment totaling$108.0 million . In the prior year period, uses of cash included expenditures related to our rental operations totaling$173.9 million , the acquisition of the homebuilding operations ofBraselton Homes for$23.0 million and purchases of property and equipment totaling$46.0 million , partially offset by proceeds from the sale of a single-family rental community for$31.8 million .
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 operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets. During the nine months endedJune 30, 2022 , net cash used in financing activities was$617.2 million , consisting primarily of repayments of amounts drawn on our homebuilding revolving credit facility totaling$2.1 billion , cash used to repurchase shares of our common stock of$859.7 million , payment of cash dividends totaling$238.4 million and net payments on our mortgage repurchase facility of$88.9 million . These uses of cash were partially offset by draws on our homebuilding revolving credit facility of$2.5 billion and draws on DRH Rental's revolving credit facility of$175 million . During the nine months endedJune 30, 2021 , net cash used in financing activities was$829.6 million , consisting primarily of repayment of$400 million principal amount of our 2.55% homebuilding senior notes at maturity, Forestar's redemption of its$350 million principal amount of 8.0% senior notes, cash used to repurchase shares of our common stock of$661.4 million and payment of cash dividends totaling$217.7 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 Forestar's issuance of$400 million principal amount of 3.85% senior notes. During each of the first three quarters of fiscal 2022, our Board of Directors approved a quarterly cash dividend of$0.225 per common share, the most recent of which was paid onMay 18, 2022 to stockholders of record onMay 9, 2022 . InJuly 2022 , our Board of Directors approved a quarterly cash dividend of$0.225 per common share, payable onAugust 11, 2022 to stockholders of record onAugust 4, 2022 . Cash dividends of$0.20 per common share were approved and paid in each quarter of fiscal 2021. 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. 57
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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
As ofJune 30, 2022 ,D.R. Horton, Inc. had$3.15 billion principal amount of homebuilding senior notes outstanding due throughOctober 2027 and$400 million outstanding on its homebuilding revolving credit facility. All of the homebuilding senior notes and the homebuilding revolving credit facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries ofD.R. Horton, Inc. (Guarantors or Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, byD.R. Horton, Inc. Our subsidiaries associated with the Forestar lot development operations, financial services operations, multi-family and single-family rental operations and certain other subsidiaries do not guarantee the homebuilding senior notes or the homebuilding revolving credit facility (collectively, Non-Guarantor Subsidiaries). 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 enforceability of the obligations of the Guarantor Subsidiaries under their guarantees may be subject to review under applicable federal or state laws relating to fraudulent conveyance or transfer, voidable preference and similar laws affecting the rights of creditors generally. In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of our guaranteed obligations. 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. 58 -------------------------------------------------------------------------------- Table of Contents The following tables present summarized financial information forD.R. Horton, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated amongD.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 June 30, September 30, Summarized Balance Sheet Data 2022 2021 (In millions) Assets Cash$ 1,143.8 $ 2,893.3 Inventories 18,725.3 14,203.2 Amount due from Non-Guarantor Subsidiaries 1,090.9 592.4 Total assets 23,675.9 19,724.9 Liabilities & Stockholders' Equity Notes payable$ 3,624.6 $ 3,214.0 Total liabilities 7,400.4 6,157.4 Stockholders' equity 16,275.5 13,567.5 Nine Months Year Ended Ended September 30, Summarized Statement of Operations Data June 30, 2022 2021 (In millions) Revenues$ 22,519.8 $ 26,566.8 Cost of sales 16,037.1 19,824.1 Selling, general and administrative expense 1,514.5 1,889.4 Income before income taxes 4,953.3 4,825.6 Net income 3,782.4 3,786.5 59
-------------------------------------------------------------------------------- Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES
As disclosed in our annual report on Form 10-K for the fiscal year ended
As disclosed in our critical accounting policies in our Form 10-K for the fiscal year endedSeptember 30, 2021 , our reserves for construction defect claims include the estimated costs of both known claims and anticipated future claims. AtJune 30, 2022 andSeptember 30, 2021 , we had reserves for approximately 540 and 380 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the nine months endedJune 30, 2022 , we established reserves for approximately 285 new construction defect claims and resolved 125 construction defect claims for a total cost of$19.4 million . AtJune 30, 2021 andSeptember 30, 2020 , we had reserves for approximately 350 and 260 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the nine months endedJune 30, 2021 , we established reserves for approximately 165 new construction defect claims and resolved 75 construction defect claims for a total cost of$13.3 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 pre-tax income in the third and
fourth quarters of our fiscal year. The seasonal nature of our business can also
cause significant variations in the working capital requirements for our
homebuilding, lot development, financial services and rental operations. 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 Securities and Exchange Commission ,
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 cyclical nature of the homebuilding, lot development and rental housing industries and changes in economic, real estate or other conditions;
•constriction of the credit and public capital markets, which could limit our ability to access capital and increase our costs of capital;
•reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates;
•the risks associated with our land, lot and rental inventory;
•our ability to effect our growth strategies, acquisitions or investments successfully;
•the impact of an inflationary, deflationary or higher interest rate environment;
•supply shortages and other risks of acquiring land, building materials and skilled labor;
•the effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our businesses;
•the effects of weather conditions and natural disasters on our business and financial results;
•home warranty and construction defect claims;
•the effects of health and safety incidents;
•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 industries in which we operate;
•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;
•actions by activist stockholders; 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 endedSeptember 30, 2021 , including the section entitled "Risk Factors," which is filed with theSEC . 61
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