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D.R. HORTON, INC.

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

07/22/2022 | 04:24pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included in this quarterly report and with our
annual report on Form 10-K for the fiscal year ended September 30, 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 in the 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
of D.R. Horton, America's Builder, Emerald Homes, Express Homes and Freedom
Homes. Our common stock is included in the S&P 500 Index and listed on the New
York Stock Exchange under the ticker symbol "DHI." Unless the context otherwise
requires, the terms "D.R. Horton," the "Company," "we" and "our" used herein
refer to D.R. Horton, Inc., a Delaware corporation, and its predecessors and
subsidiaries.

Our business operations consist of homebuilding, a majority-owned residential
lot development company, financial services, 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 ended June 30, 2022. Approximately 91% of our home sales
revenue in the nine months ended June 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
in the United States provides a strong platform for us to compete for new home
sales. Our product offerings include a broad range of homes for entry-level,
move-up, active adult and luxury buyers. 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.

At June 30, 2022, we owned 63% of the outstanding shares of Forestar Group Inc.
(Forestar), a publicly traded residential lot development company listed on the
New York Stock Exchange under the ticker symbol "FOR." Forestar is a key part of
our homebuilding strategy to 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.

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OVERVIEW


During the nine months ended June 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 ended June 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 ended June 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 ended June 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 to D.R. Horton for the trailing twelve months divided by
average stockholders' equity, where average stockholders' equity is the sum of
ending stockholders' equity balances of the trailing five quarters divided by
five. Homebuilding ROI is calculated as homebuilding pre-tax income for the
trailing twelve months divided by average inventory, where average inventory is
the sum of ending homebuilding inventory balances for the trailing five quarters
divided by five.

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. In June 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 at June 30,
2022 compared to 76% at both September 30, 2021 and June 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.

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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 June 30, 2022, as compared to the same period of 2021, were as follows:

Homebuilding:

•Homebuilding revenues increased 18% to $8.3 billion compared to $7.0 billion.

•Homes closed decreased 1% to 21,308 homes, while the average closing price of those homes increased 20% to $391,200.

•Net sales orders decreased 7% to 16,693 homes, while the value of net sales orders increased 8% to $6.9 billion.

•Sales order backlog decreased 9% to 29,244 homes, while the value of sales order backlog increased 8% to $11.9 billion.

•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 $2.0 billion compared to $1.3 billion.

•Homebuilding pre-tax income was 23.4% of homebuilding revenues compared to 18.8%.

•Homebuilding cash and cash equivalents totaled $1.2 billion compared to $3.0 billion and $1.7 billion at September 30, 2021 and June 30, 2021, respectively.

•Homebuilding inventories totaled $17.9 billion compared to $13.9 billion and $13.5 billion at September 30, 2021 and June 30, 2021, respectively.

•Homes in inventory totaled 56,400 compared to 47,800 and 47,300 at September 30, 2021 and June 30, 2021, respectively.


•Owned lots totaled 131,100 compared to 127,800 and 123,900 at September 30,
2021 and June 30, 2021, respectively. Lots controlled through purchase contracts
increased to 467,100 from 402,500 and 393,200 at September 30, 2021 and June 30,
2021, respectively.

•Homebuilding debt was $3.7 billion compared to $3.2 billion and $2.6 billion at September 30, 2021 and June 30, 2021, respectively.


•Homebuilding debt to total capital was 17.0% compared to 17.8% and 16.0% at
September 30, 2021 and June 30, 2021, respectively. Net homebuilding debt to
total capital was 12.1% compared to 1.7% and 6.4% at September 30, 2021 and
June 30, 2021, respectively.

Forestar:

•Forestar's revenues decreased 1% to $308.5 million compared to $312.9 million. Revenues in the current and prior year quarters included $258.1 million and $303.2 million, respectively, of revenue from land and lot sales to our homebuilding segment.

•Forestar's lots sold decreased 10% to 3,473 compared to 3,858. Lots sold to D.R. Horton totaled 3,038 compared to 3,719.

•Forestar's pre-tax income was $52.7 million compared to $21.1 million.

•Forestar's pre-tax income was 17.1% of revenues compared to 6.7%.

•Forestar's cash and cash equivalents totaled $146.3 million compared to $153.6 million and $116.0 million at September 30, 2021 and June 30, 2021, respectively.

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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 $705.6 million compared to $704.5 million and $704.1 million at September 30, 2021 and June 30, 2021, respectively.


•Forestar's debt to total capital was 38.1% compared to 41.0% and 42.1% at
September 30, 2021 and June 30, 2021, respectively. Forestar's net debt to total
capital was 32.8% compared to 35.2% and 37.8% at September 30, 2021 and June 30,
2021, respectively.

Financial Services:

•Financial services revenues increased 35% to $254.3 million compared to $188.7 million.

•Financial services pre-tax income increased 83% to $128.3 million compared to $70.3 million.

•Financial services pre-tax income was 50.5% of financial services revenues compared to 37.3%.


Rental:

•Rental revenues were $109.7 million compared to $23.1 million.

•Rental pre-tax income was $42.6 million compared to $9.9 million.

•Rental inventory totaled $2.0 billion compared to $840.9 million and $760.2 million at September 30, 2021 and June 30, 2021, respectively.

•Single-family rental homes and multi-family rental units closed totaled 382 compared to 69.


Consolidated Results:

•Consolidated revenues increased 21% to $8.8 billion compared to $7.3 billion.

•Consolidated pre-tax income increased 54% to $2.2 billion compared to $1.4 billion.

•Consolidated pre-tax income was 24.8% of consolidated revenues compared to 19.4%.

•Income tax expense was $524.0 million compared to $299.1 million, and our effective tax rate was 24.0% compared to 21.1%.

•Net income attributable to D.R. Horton increased 48% to $1.6 billion compared to $1.1 billion.

•Diluted net income per common share attributable to D.R. Horton increased 53% to $4.67 compared to $3.06.

•Stockholders' equity was $18.1 billion compared to $14.9 billion and $13.8 billion at September 30, 2021 and June 30, 2021, respectively.

•Book value per common share increased to $52.00 compared to $41.81 and $38.54 at September 30, 2021 and June 30, 2021, respectively.

•Debt to total capital was 24.9% compared to 26.7% and 24.2% at September 30, 2021 and June 30, 2021, respectively. Net debt to total capital was 19.3% compared to 12.9% and 15.2% at September 30, 2021 and June 30, 2021, respectively.

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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 $22.5 billion compared to $18.9 billion.

•Homes closed decreased 1% to 59,532 homes, while the average closing price of those homes increased 20% to $377,800.

•Net sales orders decreased 4% to 62,555 homes, while the value of net sales orders increased 15% to $24.9 billion.

•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 $4.9 billion compared to $3.3 billion.

•Homebuilding pre-tax income was 21.9% of homebuilding revenues compared to 17.4%.

•Net cash provided by homebuilding operations was $124.5 million compared to $450.7 million.


Forestar:

•Forestar's revenues increased 25% to $1.1 billion compared to $907.1 million. Revenues in the current and prior year periods included $977.8 million and $865.8 million, respectively, of revenue from land and lot sales to our homebuilding segment.

•Forestar's lots sold increased 25% to 13,777 compared to 11,013. Lots sold to D.R. Horton totaled 11,823 compared to 10,466.

•Forestar's pre-tax income was $169.4 million compared to $87.9 million.

•Forestar's pre-tax income was 14.9% of revenues compared to 9.7%.

Financial Services:

•Financial services revenues increased 10% to $660.8 million compared to $601.1 million.

•Financial services pre-tax income increased 10% to $288.2 million compared to $262.1 million.

•Financial services pre-tax income was 43.6% of financial services revenues in both periods.


Rental:

•Rental revenues were $489.1 million compared to $54.9 million.

•Rental pre-tax income was $215.1 million compared to $12.0 million.

•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 $23.8 billion compared to $19.7 billion.

•Consolidated pre-tax income increased 53% to $5.6 billion compared to $3.6 billion.

•Consolidated pre-tax income was 23.3% of consolidated revenues compared to 18.5%.

•Income tax expense was $1.3 billion compared to $784.1 million, and our effective tax rate was 23.7% compared to 21.6%.

•Net income attributable to D.R. Horton increased 49% to $4.2 billion compared to $2.8 billion.

•Diluted net income per common share attributable to D.R. Horton increased 53% to $11.85 compared to $7.73.

•Net cash used in operations was $562.8 million compared to $34.5 million.

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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



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


The number of net sales orders decreased 7% and 4% in the three and nine months
ended June 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 ended June 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 ended June 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. In June 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 ended June 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: the Seattle
and Portland markets in the Northwest; the California and Arizona markets in the
Southwest; the Austin market in the South Central; and the Louisiana and Tampa
markets in the Southeast. In regions with an increase in sales order volume, the
markets contributing most to the increases were: the Myrtle Beach market in the
East and the New Jersey and Minnesota markets in the North.

The number of net sales orders decreased 4% in the nine months ended June 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: the Seattle
and Denver markets in the Northwest; the Arizona and California markets in the
Southwest; the Austin and Fort Worth markets in the South Central; and the
Louisiana, Tampa and Orlando markets in the Southeast. In regions with an
increase in sales order volume, the markets contributing most to the increases
were: the Myrtle Beach market in the East and the Indianapolis and Ohio 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 ended
June 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 in June 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.

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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 ended June 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 of June 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 ended June 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 ended June 30,
2021.


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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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 ended June 30, 2022, respectively, from the prior year periods. Our
homebuilding operations employed 9,590 and 8,203 people at June 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 ended June 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 ended June 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 ended June 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.

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Homebuilding Results by Reporting Region



                                                       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 ended June 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 ended June 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 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 decreased by 100 and 90 basis points in the three and
nine months ended June 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 ended June 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 ended June 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 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 decreased by 100 and 90 basis points in the three and nine months
ended June 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 ended June 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 ended June 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 ended June 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 ended June 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 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 $309.9 million and $778.1 million in the
three and nine months ended June 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
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 decreased by 30 and 20 basis points in the three and nine months ended
June 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 ended June 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 ended June 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 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 decreased by 30 basis points in both the three and nine months
ended June 30, 2022 compared to the prior year periods, primarily due to the
increase in homebuilding revenues.

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HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY


We routinely enter into contracts to purchase land or developed residential lots
at predetermined prices on a defined schedule commensurate with planned
development or anticipated new home demand. At the time of purchase, the
undeveloped land is generally vested with the rights to begin development or
construction work, and we plan and coordinate the development of our land into
residential lots for use in our homebuilding business. We manage our inventory
of owned land and lots and homes under construction relative to demand in each
of our markets, including starting construction on unsold homes to capture new
home demand and actively controlling the number of unsold, completed homes in
inventory.

Our homebuilding segment's inventories at June 30, 2022 and September 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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Table of Contents Our land and lot position and homes in inventory at June 30, 2022 and September 30, 2021 are summarized as follows:

                                             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 June 30, 2022 and 2021 were as follows:

                                                        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, comprising DHI Mortgage
and our subsidiary title companies, for the three and nine months ended June 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 by DHI 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 of D.R. Horton homes
financed by DHI Mortgage                               69  %                 66  %                                       68  %                 67  %
Number of total loans originated or
brokered by DHI 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 by DHI 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  %




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Mortgage Loan Activity


The volume of loans originated by our mortgage operations is directly related to
the number of homes closed by our homebuilding operations. In the three and nine
months ended June 30, 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 by DHI Mortgage for our homebuyers
increased slightly due to an increase in the percentage of homes closed for
which DHI Mortgage handled our homebuyers' financing.

Homes closed by our homebuilding operations constituted 99% and 98% of DHI
Mortgage loan originations in the three and nine months ended June 30, 2022,
respectively, compared to 98% in both prior year periods. These percentages
reflect DHI Mortgage's consistent focus on the captive business provided by our
homebuilding operations.

The number of loans sold increased 3% in the three month period and were
essentially unchanged in the nine month period ended June 30, 2022 compared to
the prior year periods. Virtually all of the mortgage loans held for sale on
June 30, 2022 were eligible for sale to the Federal National Mortgage
Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie
Mac) or the Government National Mortgage Association (Ginnie Mae). During the
nine months ended June 30, 2022, approximately 67% of our mortgage loans were
sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie
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 or Ginnie Mae, and we may need to make other adjustments to our mortgage
operations.

Financial Services Revenues and Expenses


Revenues from our mortgage operations increased 41% to $209.7 million and 8% to
$533.7 million in the three and nine months ended June 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 ended June 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 ended June 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 ended
June 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 at June 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 ended June 30, 2022 from $262.1 million in the prior year period.

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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 ended June 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 ended June 30, 2022, we sold one multi-family rental
property (298 total units) for $69.3 million, and during the nine months ended
June 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 ended June 30, 2022, we sold one
single-family rental property (84 total homes) for $39.5 million, and during the
nine months ended June 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.

At June 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. At June 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. At June 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 September 30, 2021, our rental property inventory of $840.9 million included $425.1 million of assets related to our multi-family rental operations and $415.8 million of assets related to our single-family rental operations. At September 30, 2021, we had 15 multi-family rental properties, consisting of 4,340 units, under active construction and one community, consisting of 350 units, that was substantially complete and in the lease-up phase. At September 30, 2021, we had 55 single-family rental properties that included 2,650 homes and finished lots, of which 865 homes were completed, and 3,200 expected lots that were unimproved or under development.

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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 ended June 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 ended June 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 ended June 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
ended June 30, 2022 are higher than the prior year periods due to the expiration
of the federal energy efficient homes tax credit for homes closed after December
31, 2021.

Our deferred tax assets, net of deferred tax liabilities, were $177.7 million at
June 30, 2022 compared to $159.5 million at September 30, 2021. We have a
valuation allowance of $20.3 million and $4.2 million at June 30, 2022 and
September 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.

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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 of June 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. At June 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% at September 30, 2021 and 24.2% at June 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% at June 30, 2022 compared to
12.9% at September 30, 2021 and 15.2% and June 30, 2021.

At June 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% at September 30, 2021 and 16.0% at June 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% at June 30, 2022 compared to 1.7% at September 30, 2021 and 6.4%
at June 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.

At June 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 the Securities and Exchange Commission (SEC) in July 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 the SEC in October 2021, registering $750 million of equity
securities, of which $300 million was reserved for sales under its at-the-market
equity offering program that became effective in November 2021. At June 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 June 30, 2022, cash and cash equivalents of our homebuilding segment totaled $1.2 billion.

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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 is April 20,
2026. Borrowings and repayments under the facility totaled $2.5 billion and $2.1
billion, respectively, during the nine months ended June 30, 2022. At June 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. At June 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 of June 30, 2022 that mature from September 2022
through October 2027. The indentures governing our senior notes impose
restrictions on the creation of secured debt and liens. At June 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 D.R. Horton, Inc.'s significant wholly-owned homebuilding subsidiaries.


Debt and Stock Repurchase Authorizations - In July 2019, our Board of Directors
authorized the repurchase of up to $500 million of debt securities. In April
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 ended June 30, 2022, we repurchased 10.5 million shares of our
common stock for $854.2 million. At June 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. At
June 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% at
September 30, 2021 and 42.1% at June 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% at September 30, 2021 and
37.8% at June 30, 2021.

Cash and Cash Equivalents - At June 30, 2022, Forestar had cash and cash equivalents of $146.3 million.


Bank Credit Facility - Forestar has a $410 million senior unsecured revolving
credit facility with an uncommitted accordion feature that could increase the
size of the facility to $600 million, subject to certain conditions and
availability of additional bank commitments. 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 is April 16, 2025. At June 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.

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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 of June 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 in May 2026 and $300 million principal amount of 5.0% senior
notes that mature in March 2028.

Forestar's revolving credit facility and its senior notes are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, financial services or rental operations. At June 30, 2022, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.


Debt Repurchase Authorization - In April 2020, Forestar's Board of Directors
authorized the repurchase of up to $30 million of Forestar's debt securities.
All of the $30 million authorization was remaining at June 30, 2022, and the
authorization has no expiration date.

Issuance of Common Stock - During the nine months ended June 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. At June 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 June 30, 2022, cash and cash equivalents of our financial services segment totaled $126.3 million.


Mortgage Repurchase Facility - Our mortgage subsidiary, DHI Mortgage, has a
mortgage repurchase facility that provides financing and liquidity to DHI
Mortgage by facilitating purchase transactions in which DHI Mortgage transfers
eligible loans to the counterparties upon receipt of funds from the
counterparties. DHI Mortgage then has the right and obligation to repurchase the
purchased loans upon their sale to third-party purchasers in the secondary
market or within specified time frames from 45 to 60 days in accordance with the
terms of the mortgage repurchase facility. In February 2022, the mortgage
repurchase facility was amended to increase its capacity and extend its maturity
date to February 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 at June 30, 2022 was $2.1 billion.

As of June 30, 2022, $2.1 billion of mortgage loans held for sale with a collateral value of $2.0 billion were pledged under the mortgage repurchase facility. As a result of advance paydowns totaling $632.0 million, DHI Mortgage had an obligation of $1.4 billion outstanding under the mortgage repurchase facility at June 30, 2022 at a 3.3% annual interest rate.


The mortgage repurchase facility is not guaranteed by D.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. At June 30, 2022, DHI Mortgage was in
compliance with all of the conditions and covenants of the mortgage repurchase
facility.



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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 - At June 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 at June 30, 2022 compared to $840.9 million at
September 30, 2021 and $760.2 million at June 30, 2021.

Bank Credit Facility - In March 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. On March 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 is March 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. At June 30, 2022, the borrowing base limited the available
capacity under the facility to $649.6 million. At June 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. At June 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 by D.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 ended June 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 June 30, 2022, cash used to increase our single-family and multi-family rental properties was $1.1 billion and is reflected as cash used in operating activities. Prior to the third quarter of fiscal 2021, cash activities related to rental properties were presented as investing activities. During the six month period ended March 31, 2021, expenditures related to rental properties were $173.9 million.

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Investing Cash Flow Activities


In the nine months ended June 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 of Vidler Water
Resources, Inc. for $271.5 million, net of the cash acquired, and purchases of
property and equipment totaling $108.0 million. In the prior year period, uses
of cash included expenditures related to our rental operations totaling $173.9
million, the acquisition of the homebuilding operations of Braselton 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 ended June 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 ended June 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 on May 18, 2022 to stockholders of record on May 9, 2022. In
July 2022, our Board of Directors approved a quarterly cash dividend of $0.225
per common share, payable on August 11, 2022 to stockholders of record on
August 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.


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SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION


As of June 30, 2022, D.R. Horton, Inc. had $3.15 billion principal amount of
homebuilding senior notes outstanding due through October 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 of D.R. Horton, Inc. (Guarantors or Guarantor
Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned, directly or
indirectly, by D.R. Horton, Inc. Our subsidiaries associated with the Forestar
lot development 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.

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


                               D.R. Horton, Inc. and Guarantor Subsidiaries

                                                                       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



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2021, our most critical accounting policies relate to revenue recognition, inventories and cost of sales, warranty and legal claims and insurance. Since September 30, 2021, there have been no significant changes to those critical accounting policies.


As disclosed in our critical accounting policies in our Form 10-K for the fiscal
year ended September 30, 2021, our reserves for construction defect claims
include the estimated costs of both known claims and anticipated future claims.
At June 30, 2022 and September 30, 2021, we had reserves for approximately 540
and 380 pending construction defect claims, respectively, and no individual
existing claim was material to our financial statements. During the nine months
ended June 30, 2022, we established reserves for approximately 285 new
construction defect claims and resolved 125 construction defect claims for a
total cost of $19.4 million. At June 30, 2021 and September 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 ended June 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 ended September 30, 2021, including the section entitled
"Risk Factors," which is filed with the SEC.

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