D.R. Horton (DHI) 10-K risk factor changes: FY2019 vs FY2018

[removed: The] [added: The] homebuilding [removed: industry is] [added: and lot development industries are] cyclical and affected by changes in economic, real estate or other conditions that could adversely affect our business or financial [removed: results.][added: results.]

The homebuilding [removed: industry is] [added: and lot development industries are] cyclical and [removed: is] [added: are] significantly affected by changes in general and local economic and real estate conditions, such as:

In the past, the federal government’s fiscal [added: and trade] policies and economic stimulus actions have created uncertainty in the financial markets and caused volatility in interest rates, which impacted business and consumer behavior.

Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic activity, droughts and floods, heavy or prolonged precipitation or wildfires, can harm our [removed: homebuilding] business.

Deployments of U.S. military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, related domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our [removed: homebuilding] business.

We may be responsible for losses associated with mortgage loans originated and sold to third-party purchasers in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower representations in the connection with the [removed: loan.][added: loan, and we may be required to repurchase certain of those mortgage loans or provide indemnification.]

We establish reserves [removed: related to mortgages] [added: for estimated losses and future repurchase obligations for mortgage loans] we have sold; however, actual future obligations related to these mortgages could differ significantly from our current estimated amounts.

[removed: Constriction] [added: Constriction] of the credit and public capital markets could limit our ability to access capital and increase our costs of [removed: capital.][added: capital.]

Our homebuilding operations utilize a [removed: $1.325] [added: $1.59] billion senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to [removed: $1.9] [added: $2.5] billion, subject to certain conditions and availability of additional bank commitments.

[removed: The] [added: Our homebuilding revolving credit] facility also provides for the issuance of letters of credit with a sublimit equal to [removed: approximately 50%] [added: 100%] of the revolving credit commitment.

The maturity date of [removed: the] [added: such] facility is [removed: September 25, 2023.][added: October 2, 2024.]

Forestar and its [added: subsidiaries, our financial services subsidiaries, and certain of our other] subsidiaries are not guarantors under [removed: the] [added: our homebuilding revolving credit] facility or our [added: homebuilding] senior notes.

The [added: Forestar revolving credit] facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment.

The maturity date of [removed: the] [added: such] facility is [removed: August 16, 2021.][added: October 2, 2022.]

The [added: Forestar revolving credit] facility is guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

The [added: Forestar revolving credit] facility is not guaranteed by us or our other subsidiaries.

Our mortgage subsidiary utilizes a [removed: $600] [added: $900] million mortgage repurchase facility to finance the majority of the loans it originates.

The capacity of the facility increases, without requiring additional commitments, to [removed: $725 million for approximately 30 days at each quarter end and to $800 million] [added: $1.1 billion] for approximately 45 days at fiscal year end.

The capacity can also be increased to [removed: $1.0] [added: $1.2] billion subject to the availability of additional commitments.

The mortgage repurchase facility must be renewed annually and currently expires on February [removed: 22, 2019.][added: 21, 2020.]

Also, Forestar has an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity [removed: securities.][added: securities, of which $394.3 million remains available.]

We believe that our existing cash resources, our [added: homebuilding] revolving credit [removed: facilities,] [added: facility,] our mortgage repurchase facility and our ability to access the capital markets will provide sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $500 million [added: aggregate] principal amount of [added: homebuilding] senior notes in fiscal [removed: 2019.][added: 2020.]

[removed: Reductions] [added: 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 could decrease our buyers’ ability to obtain financing and adversely affect our business or financial [removed: results.][added: results.]

During fiscal [removed: 2018,] [added: 2019,] approximately [removed: 92%] [added: 93%] of the mortgage loans sold by DHI Mortgage were sold to four major financial entities, the largest percentage of which purchased [removed: 36%] [added: 32%] of the total loans sold.

Mortgage rates are currently low as compared to most historical periods; however, [removed: mortgage rates have increased recently and may increase further as] the Federal Reserve Board [removed: has raised] [added: could raise] its benchmark [removed: rate several times over the past year and has indicated further interest rate increases are likely.][added: rate.]

When interest rates increase, the cost of owning a home increases, which will likely reduce the number of potential homebuyers who can obtain mortgage [removed: financing,] [added: financing] and could result in a decline in the demand for our homes.

[removed: The] [added: The] risks associated with our land and lot inventory could adversely affect our business or financial [removed: results.][added: results.]

As a result, our deposits for lots controlled under [removed: option or similar] [added: purchase] contracts may be put at risk, we may have to sell homes or land for a lower profit margin or record inventory impairment charges on our land and lots.

[removed: We] [added: We] cannot make any assurances that our growth strategies, acquisitions or investments will be successful or will not expose us to additional risks or other negative [removed: consequences.][added: consequences.]

We have also expanded through investments in new product [removed: offerings and in] [added: offerings,] new geographic [removed: markets.][added: markets, and the growth of our multi-family rental property operations.]

Investments in land, [removed: lots and] [added: lots,] home inventories [added: and rental properties] can expose us to risks of economic loss and [removed: inventory] [added: asset] impairments if housing conditions weaken or if we are unsuccessful in implementing our growth strategies.

Forestar is a publicly traded residential lot development company with operations in [removed: 24] [added: 51] markets and [removed: 14] [added: 20] states as of September 30, [removed: 2018.][added: 2019.]

[removed: Both our] [added: Our] homebuilding divisions [removed: and Forestar are identifying land development opportunities to expand Forestar’s platform, and our homebuilding operations are acquiring] [added: acquire] finished lots from Forestar in accordance with the master supply agreement between the two [removed: companies.][added: companies, and we provide Forestar certain administrative, compliance, operational and procurement services through a shared services agreement.]

Acquisitions and investments can result in dilution to existing stockholders if we issue our common stock as [removed: consideration,] [added: consideration] and can increase our debt levels or reduce our liquidity if we purchase them with cash.

[removed: Our] [added: Our] business and financial results could be adversely affected by significant inflation, higher interest rates or [removed: deflation.][added: deflation.]

[removed: Homebuilding] [added: Homebuilding] is subject to home warranty and construction defect claims in the ordinary course of business that can be [removed: significant.][added: significant.]

[removed: A] [added: A] health and safety incident relating to our operations could be costly in terms of potential liability and reputational [removed: damage.][added: damage.]

Building [added: and land development] sites are inherently dangerous, and operating in the homebuilding [removed: industry] [added: and lot development industries] poses certain inherent health and safety risks.

[removed: Damage] [added: Damage] to our corporate reputation or brands from negative publicity could adversely affect our business, financial results and/or stock [removed: price.][added: price.]

[removed: The harm may be immediate without affording us an opportunity for redress or correction,] and our success in preserving our brand image depends on our ability to recognize, respond to and effectively manage negative publicity in a rapidly changing environment.

Repurchased mortgage loans and/or the settlement of claims associated with such loans could adversely affect our business or financial results.

We believe that Forestar’s existing cash resources together with borrowings under the Forestar revolving credit facility and its ability to access the capital markets will provide sufficient liquidity to fund its near-term working capital needs, including the maturity of its convertible senior notes in fiscal 2020.

We currently own approximately 66% of the outstanding shares of Forestar.

Forestar is making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform.

The harm may be immediate without affording us an opportunity for redress or correction,

In addition, tariffs, duties and/or trade restrictions imposed or increased on imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum and lumber, may raise our costs for these items or for the products made with them.

As of September 30, 2019, our consolidated debt was $3.4 billion, which consisted of $2.0 billion related to our homebuilding segment, $462.9 million related to our Forestar segment and $888.9 million related to our financial services segment.

The Forestar revolving credit facility and the indenture governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

For example, possible consequences for our homebuilding, financial services and Forestar operations each with respect to their individual debt obligations, could:

Servicing our debt requires a significant amount of cash, and we or our subsidiaries may not have sufficient cash flow from our respective businesses to pay our substantial debt.

The instruments governing our and our subsidiaries’ indebtedness impose certain restrictions on our and our subsidiaries’ business, and the ability of us and our subsidiaries to comply with related covenants, restrictions or limitations could adversely affect our and our subsidiaries’ financial condition or operating flexibility.

The restrictions imposed by our and certain of our subsidiaries’ indebtedness could limit our or our subsidiaries’ ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans and adversely affect our or our subsidiaries’ ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.

The agreements governing our indebtedness contain restrictions on our and our guarantor subsidiaries’ ability to, among other things, engage in sale and leaseback transactions with respect to certain assets, incur secured debt, create liens, pay dividends and make other distributions on or redeem or repurchase equity securities, sell certain assets and engage in mergers, consolidations or sales of all or substantially all of our assets.

The instruments governing Forestar’s indebtedness contain restrictions on the ability of Forestar and certain of its subsidiaries to, among other things, incur additional indebtedness, create liens, pay dividends and make other distributions on or redeem or repurchase equity securities, sell certain assets, enter into affiliate transactions and engage in mergers, consolidations or sales of all or substantially all of Forestar’s assets.

In addition, the agreements governing certain of our and our subsidiaries’ debt instruments contain the following financial covenants:

Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our debt ratings.

Any lowering of Forestar’s debt ratings could also make Forestar’s ability to access the public capital markets or obtain additional credit from banks more difficult and/or more expensive.

The instruments governing our indebtedness contain change of control provisions which could affect the timing of repayment.

*Change of control purchase option under Forestar’s notes and change of control default under the Forestar revolving credit facility.* Upon the occurrence of a change of control triggering event (as defined in the indenture governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any.

If the maturity of the Forestar revolving credit facility and/or other indebtedness of Forestar and its restricted subsidiaries together having an aggregate principal amount outstanding of $40 million or more is accelerated, an event of default would result under the indenture governing the Forestar notes, entitling the trustee for the Forestar notes or holders of at least 25% in aggregate principal amount of the then outstanding Forestar notes to declare all such Forestar notes to be due and payable immediately.

The unintended or unauthorized public disclosure of personal identifying and confidential information related to our homebuyers, employees, vendors and suppliers as a result of a security breach could also lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators.

Recently, the Federal Reserve has increased short-term interest rates and has indicated that future interest rate increases are likely, which has caused long-term interest rates on home mortgage loans to rise.

Our alignment with Forestar advances our strategy of increasing our access to optioned land and lot positions to enhance operational efficiency and returns.

Forestar’s revolving credit facility does not restrict the incurrence of future unsecured debt by Forestar or its subsidiaries or the incurrence of secured debt by Forestar’s subsidiaries that are not guarantors of Forestar’s revolving credit facility.

Possible consequences.

For example, they could:

In addition, our debt obligations and the restrictions imposed by the instruments governing those obligations expose us to additional risks, including:

Dependence on future performance.

Homebuilding revolving credit facility.

Forestar’s revolving credit facility.

Mortgage repurchase facility and other restrictions.

Changes in debt ratings.

Change of control purchase options and change of control default.

Change of control default under Forestar’s revolving credit facility.

[removed: Results] [added: Results] of Operations — Fiscal [removed: Year 2018 Overview][added: Year 2019 Overview]

[removed: However, we] [added: We] continue to see solid economic fundamentals and a limited supply of homes at affordable prices across most of our markets.

We believe our business is well positioned with a broad geographic footprint, [removed: diverse] [added: affordable] product offerings, a balanced supply of finished lots, land and homes, a strong balance sheet and liquidity [added: position] and experienced personnel across our operating markets.

We remain focused on growing our revenues and profitability, generating [removed: positive] [added: consistently strong] annual cash flows from operations and managing our product offerings, pricing, sales [removed: pace,] [added: pace] and inventory levels to optimize the return on our inventory investments.

In fiscal [removed: 2018,] [added: 2019,] our number of homes closed and home sales revenues increased [removed: 13%] [added: 10%] and [removed: 14%,] [added: 9%,] respectively, compared to the prior year.

Our pre-tax income was $2.1 billion in [removed: fiscal 2018 compared to $1.6 billion in] [added: both] fiscal [removed: 2017] [added: 2019] and [removed: $1.4 billion in fiscal 2016.][added: 2018.]

Our pre-tax operating margin [removed: increased to 12.8%] [added: was 12.1%] in fiscal [removed: 2018] [added: 2019] compared to [removed: 11.4% in fiscal 2017 and 11.1%] [added: 12.8%] in fiscal [removed: 2016.][added: 2018.]

Cash provided by our homebuilding operations was [removed: $1.0] [added: $1.4] billion in fiscal [removed: 2018] [added: 2019] compared to [removed: $303.7 million in fiscal 2017 and $580.5 million] [added: $1.0 billion] in fiscal [removed: 2016.][added: 2018.]

In fiscal [removed: 2018,] [added: 2019,] our homebuilding return on inventory (ROI) [removed: improved to 20.2%] [added: was 18.1%] compared to [removed: 16.6% in fiscal 2017 and 15.4%] [added: 20.2%] in fiscal [removed: 2016.][added: 2018.]

Within our homebuilding land and lot portfolio, our lots controlled under [removed: option] purchase contracts represent [removed: 57%] [added: 60%] of the lots owned and controlled at September 30, [removed: 2018] [added: 2019] compared to [removed: 50%] [added: 57%] at September 30, [removed: 2017.][added: 2018.]

Therefore, we expect that housing market conditions will [removed: continue to] vary across our markets.

If the U.S. economy [removed: remains strong,] [added: continues to grow,] we expect to see [removed: continued strength in] [added: solid] housing demand, concentrated in markets where job growth is occurring and new home prices remain affordable relative to household incomes.

The pace and sustainability of new home demand and our future results could be negatively affected by weakening economic conditions, decreases in the level of employment and housing demand, decreased home affordability, [removed: further] increases in mortgage interest rates or tightening of mortgage lending standards.

[removed: Strategy][added: Strategy]

Our operating strategy focuses on [added: enhancing long-term value to our shareholders by] leveraging our financial and competitive position [added: in our core homebuilding business] to increase the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to make opportunistic strategic investments.

| • | Delivering high quality homes [removed: to our customers] and a positive experience [added: to our customers] both during and after the sale. |

| • | Increasing the amount of land and finished lots controlled through [removed: option] purchase contracts by expanding relationships with land developers across the country and [removed: growing] [added: continuing to assist] our majority-owned Forestar lot development [added: subsidiary with the growth of their] operations. |

| • | [removed: Pursuing] [added: Opportunistically pursuing] acquisitions [removed: of companies] to enhance [removed: and improve the returns of] our [removed: homebuilding] [added: operations] and [removed: other operations.] [added: improve returns.] |

[removed: Key Results][added: Key Results]

Key financial results as of and for our fiscal year ended September 30, [added: 2019, as compared to fiscal] 2018 (or from the acquisition date of October 5, 2017 through September 30, 2018 for Forestar’s results), [removed: as compared to fiscal 2017,] were as follows:

[removed: Homebuilding:][added: Homebuilding:]

| • | Homebuilding revenues increased [removed: 14%] [added: 9%] to [added: $17.0 billion compared to] $15.6 billion. |

| • | Homes closed increased [removed: 13%] [added: 10%] to [removed: 51,857] [added: 56,975] homes, and the average closing price of those homes was [removed: $298,900.] [added: $297,100.] |

| • | Net sales orders increased [removed: 13%] [added: 7%] to [removed: 52,740] [added: 56,565] homes, and the value of net sales orders increased [removed: 13%] [added: 7%] to [removed: $15.8] [added: $16.8] billion. |

| • | Sales order backlog increased [removed: 8%] [added: 2%] to [removed: 13,371] [added: 13,613] homes, and the value of sales order backlog increased [removed: 8%] [added: 3%] to [removed: $4.0] [added: $4.1] billion. |

| • | Home sales gross margin [removed: increased 130 basis points] [added: was 20.2% compared] to 21.3%. |

[removed: | • | Homebuilding SG&A expenses as] [added: As] a percentage of homebuilding [removed: revenues] [added: revenues, SG&A expenses] decreased by 30 basis points [added: in 2019 compared] to [removed: 8.6%. |][added: 2018.]

| • | Homebuilding pre-tax income [removed: increased 31% to $2.0] [added: was $1.9] billion compared to [removed: $1.5] [added: $2.0] billion. |

| [removed: •] | [removed: Homebuilding pre-tax income as a percentage of homebuilding revenues improved to 12.5% compared to 10.8%.] | [added: Homebuilding Revenues | | | | Homebuilding Pre-tax Income (1) | | | | % of Revenues | | | Homebuilding Revenues | | | | Homebuilding Pre-tax Income (1) | | | | % of Revenues | |]

| • | Net cash provided by homebuilding operations [removed: increased to $1.0] [added: was $1.4] billion compared to [removed: $303.7 million.] [added: $1.0 billion.] |

| • | Homebuilding cash and cash equivalents totaled [removed: $1.1] [added: $1.0] billion compared to [removed: $973.0 million.] [added: $1.1 billion.] |

| • | Homebuilding inventories totaled [removed: $9.9] [added: $10.3] billion compared to [removed: $9.2] [added: $9.9] billion. |

| • | Homes in inventory totaled [removed: 29,700] [added: 27,700] compared to [removed: 26,200.] [added: 27,900.] |

| • | Owned lots totaled [removed: 124,300] [added: 121,400] compared to [removed: 125,000,] [added: 124,300,] and lots controlled through [removed: option] purchase contracts [removed: totaled 164,200 compared] [added: increased] to [removed: 124,000.] [added: 185,900 from 164,200.] |

| • | Homebuilding debt [removed: was $2.4 billion compared] [added: decreased] to [removed: $2.5] [added: $2.0 billion from $2.4] billion. |

| • | Homebuilding debt to total capital improved to [removed: 21.4% from 24.0%.] [added: 17.0% compared to 21.4%.] |

[removed: Forestar:][added: Forestar:]

| • | Forestar’s revenues [removed: were] [added: increased 292% to $428.3 million compared to] $109.2 [removed: million, which] [added: million. Revenues in fiscal 2019 and 2018] included [removed: $39.1] [added: $326.6] million [added: and $39.1 million, respectively,] of [removed: revenues] [added: revenue] from land and lot sales to our homebuilding segment. |

| • | Owned and controlled lots totaled [added: 38,300 compared to] 20,100. Of these lots, [removed: 13,600] [added: 23,400] were under contract to sell to or subject to a right of first offer with D.R. [removed: Horton.] [added: Horton compared to 13,600.] |

| • | Forestar’s cash and cash equivalents totaled [added: $382.8 million compared to] $318.8 million. |

These conditions resulted in some moderation of demand for new homes across most of our markets in late fiscal 2018 and early fiscal 2019, and in response, we increased our sales incentives to improve sales pace.

Later in fiscal 2019, interest rates on mortgage loans decreased, and we reduced sales incentives as demand strengthened compared to earlier in the year.

Growing our majority-owned Forestar lot development operations is advancing our homebuilding strategy of increasing our controlled finished lot pipeline.

| • | 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. |

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

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

| • | Homebuilding SG&A expense was 8.7% of homebuilding revenues compared to 8.6%. |

| • | Homebuilding return on inventory was 18.1% compared to 20.2%. |

| • | Forestar’s lot sales increased 223% to 4,132 compared to 1,279. Lot sales to D.R. Horton were 3,728 compared to 642. |

| • | Forestar’s pre-tax income was $45.7 million compared to $48.7 million. |

| • | Forestar’s pre-tax income was 10.7% of Forestar revenues compared to 44.6%. |

| • | Forestar’s debt was $460.5 million compared to $111.7 million. |

For similar operating and financial data and discussion of our fiscal 2018 results compared to our fiscal 2017 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2018, which was filed with the SEC on November 16, 2018.

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| | | Net Homes Sold | | | | | | | Value (In millions) | | | | | | | | | | | Average Selling Price | | | | | | | | | |

| | | 2019 | | 2018 | | % Change | | | 2019 | | | | 2018 | | | | % Change | | | 2019 | | | | 2018 | | | | % Change | |

| East | | 7,941 | | 6,994 | | 14 | % | | $ | 2,291.1 | | | $ | 1,988.8 | | | 15 | % | | $ | 288,500 | | | $ | 284,400 | | | 1 | % |

| Midwest | | 3,224 | | 2,209 | | 46 | % | | 1,127.8 | | | | 864.3 | | | | 30 | % | | 349,800 | | | | 391,300 | | | | (11 | )% |

| Southeast | | 18,609 | | 17,380 | | 7 | % | | 5,011.2 | | | | 4,640.7 | | | | 8 | % | | 269,300 | | | | 267,000 | | | | 1 | % |

| South Central | | 16,278 | | 15,317 | | 6 | % | | 4,123.5 | | | | 3,849.8 | | | | 7 | % | | 253,300 | | | | 251,300 | | | | 1 | % |

| Southwest | | 2,797 | | 3,179 | | (12 | )% | | 750.6 | | | | 784.4 | | | | (4 | )% | | 268,400 | | | | 246,700 | | | | 9 | % |

| West | | 7,716 | | 7,661 | | 1 | % | | 3,539.2 | | | | 3,632.7 | | | | (3 | )% | | 458,700 | | | | 474,200 | | | | (3 | )% |

| | | 56,565 | | 52,740 | | 7 | % | | $ | 16,843.4 | | | $ | 15,760.7 | | | 7 | % | | $ | 297,800 | | | $ | 298,800 | | | — | % |

| | | 2019 | | 2018 | | 2019 | | | | 2018 | | | | 2019 | | | 2018 | |

| East | | 2,155 | | 2,031 | | $ | 607.3 | | | $ | 570.0 | | | 21 | % | | 23 | % |

| Midwest | | 680 | | 299 | | 229.2 | | | | 115.1 | | | | 17 | % | | 12 | % |

| Southeast | | 5,410 | | 5,655 | | 1,444.4 | | | | 1,502.5 | | | | 23 | % | | 25 | % |

| Southwest | | 969 | | 1,031 | | 247.0 | | | | 251.8 | | | | 26 | % | | 24 | % |

| West | | 1,323 | | 1,378 | | 614.0 | | | | 661.3 | | | | 15 | % | | 15 | % |

| | | 15,288 | | 14,802 | | $ | 4,335.1 | | | $ | 4,192.6 | | | 21 | % | | 22 | % |

Higher sales volumes in our East and Midwest regions reflect our acquisitions of the homebuilding operations of Terramor Homes, Westport Homes and Classic Builders in early fiscal 2019, which added 262 net sales orders to the East region’s results and 1,199 net sales orders to the Midwest region's results.

Lower sales volume in our Southwest region during 2019 was due to a decrease in sales orders in our Phoenix market.

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| | | 2019 | | 2018 | | % Change | | | 2019 | | | | 2018 | | | | % Change | | | 2019 | | | | 2018 | | | | % Change | |

| East | | 1,916 | | 1,841 | | 4 | % | | $ | 576.1 | | | $ | 548.6 | | | 5 | % | | $ | 300,700 | | | $ | 298,000 | | | 1 | % |

| Midwest | | 1,063 | | 442 | | 140 | % | | 364.7 | | | | 179.2 | | | | 104 | % | | 343,100 | | | | 405,400 | | | | (15 | )% |

During fiscal 2018, demand for new homes across most of our markets was strong, particularly at affordable price points, and the supply of new homes for sale remained limited.

The level of strength in new home demand and home prices varied across our markets based on the relative strength of each market’s economy, as measured by job growth, household incomes, household formations and consumer confidence and the relative affordability of new home prices as compared to household incomes in each market.

These conditions have resulted in some recent moderation of demand for new homes, particularly at higher price points.

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.

In recent years, we have expanded our product offerings to include a broad range of homes for entry-level, move-up and luxury buyers across most of our markets.

Our affordable entry-level homes have experienced very strong demand from homebuyers, as the entry-level segment of the new home market remains under-served, with low inventory levels relative to demand.

More recently, we have also been introducing homes at affordable price points in communities designed for active adult buyers seeking a low-maintenance lifestyle.

The increase in 2018 compared to 2017 was primarily the result of an increase in our home sales gross margin.

During fiscal 2018, we reduced sales incentives or raised prices in communities where we were achieving our targeted sales pace, while striving to ensure our product offerings remained affordable.

As land and construction costs have generally increased, we have leveraged our scale and relationships to control these increases.

The Forestar acquisition is advancing our homebuilding strategy of increasing our access to optioned land and lot positions.

| • | Homebuilding return on inventory improved 360 basis points to 20.2%. |

| • | Forestar’s pre-tax income was $48.7 million, which included gross profit of $9.0 million from land and lot sales to our homebuilding segment. |

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| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2018 | | | | 2017 | | | | 2016 | | | | 2018 vs 2017 | | | 2017 vs 2016 | |

| East | | 6,994 | | | | 6,039 | | | | 4,944 | | | | 16 | % | | 22 | % |

| Midwest | | 2,209 | | | | 1,841 | | | | 1,766 | | | | 20 | % | | 4 | % |

| Southeast | | 17,380 | | | | 15,575 | | | | 13,616 | | | | 12 | % | | 14 | % |

| South Central | | 15,317 | | | | 13,374 | | | | 12,433 | | | | 15 | % | | 8 | % |

| Southwest | | 3,179 | | | | 2,693 | | | | 1,761 | | | | 18 | % | | 53 | % |

| West | | 7,661 | | | | 7,083 | | | | 6,294 | | | | 8 | % | | 13 | % |

| | | 52,740 | | | | 46,605 | | | | 40,814 | | | | 13 | % | | 14 | % |

| East | | $ | 1,988.8 | | | $ | 1,708.9 | | | $ | 1,388.5 | | | 16 | % | | 23 | % |

| Midwest | | 864.3 | | | | 722.6 | | | | 669.2 | | | | 20 | % | | 8 | % |

| Southeast | | 4,640.7 | | | | 4,068.9 | | | | 3,547.3 | | | | 14 | % | | 15 | % |

| South Central | | 3,849.8 | | | | 3,339.1 | | | | 3,045.4 | | | | 15 | % | | 10 | % |

| Southwest | | 784.4 | | | | 620.5 | | | | 409.0 | | | | 26 | % | | 52 | % |

| West | | 3,632.7 | | | | 3,481.2 | | | | 2,940.8 | | | | 4 | % | | 18 | % |

| | | $ | 15,760.7 | | | $ | 13,941.2 | | | $ | 12,000.2 | | | 13 | % | | 16 | % |

| East | | $ | 284,400 | | | $ | 283,000 | | | $ | 280,800 | | | — | % | | 1 | % |

| Midwest | | 391,300 | | | | 392,500 | | | | 378,900 | | | | — | % | | 4 | % |

| Southeast | | 267,000 | | | | 261,200 | | | | 260,500 | | | | 2 | % | | — | % |

| Southwest | | 246,700 | | | | 230,400 | | | | 232,300 | | | | 7 | % | | (1 | )% |

| West | | 474,200 | | | | 491,500 | | | | 467,200 | | | | (4 | )% | | 5 | % |

| | | $ | 298,800 | | | $ | 299,100 | | | $ | 294,000 | | | — | % | | 2 | % |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | 2018 | | 2017 | | 2016 | | 2018 | | | | 2017 | | | | 2016 | | | | 2018 | | | 2017 | | | 2016 | |

| East | | 2,031 | | 1,818 | | 1,582 | | $ | 570.0 | | | $ | 500.3 | | | $ | 425.4 | | | 23 | % | | 23 | % | | 24 | % |

The net fair value change, which for the years ended September 30, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] was not significant, is recognized in current earnings.

At September 30, [removed: 2018,] [added: 2019,] hedging instruments used to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled a notional amount of [removed: $1.0] [added: $1.3] billion.

Uncommitted IRLCs totaled a notional amount of approximately [removed: $459.7] [added: $702.7] million and uncommitted mortgage loans held for sale totaled a notional amount of approximately [removed: $575.9] [added: $663.8] million at September 30, [removed: 2018.][added: 2019.]

The following table sets forth principal cash flows by scheduled maturity, effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, [removed: 2018.][added: 2019.]

The interest rate for our variable rate debt represents the weighted average interest rate in effect at September 30, [removed: 2018.][added: 2019.]

| | | [removed: Fiscal] [added: Fiscal] Year Ending September [removed: 30,] [added: 30,] | | | | | | | | | | | | | | | | | | | | | | | | | | | | [removed: Fair] [added: Fair] Value at September 30, [removed: 2018] [added: 2019] | | |

| | | [removed: 2019] [added: 2020] | | | | [removed: 2020] [added: 2021] | | | | [removed: 2021] [added: 2022] | | | | [removed: 2022] [added: 2023] | | | | [removed: 2023] [added: 2024] | | | | [removed: Thereafter] [added: Thereafter] | | | | [removed: Total] [added: Total] | | | | | | |

| | | [removed: ($] [added: ($] in [removed: millions)] [added: millions)] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| [removed: Debt:] [added: Debt:] | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Average interest rate | | [removed: 3.9] [added: 3.8] | | % | | [removed: 4.0] [added: 2.8] | | % | | [removed: 2.8] [added: 4.5] | | % | | [removed: 4.5] [added: 5.5] | | % | | [removed: 5.5] [added: 8.6] | | % | | — | | % | | [removed: 4.3] [added: 4.9] | | % | | | | |

| Variable rate | | $ | [removed: 637.7] [added: 888.9] | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | [removed: 637.7] [added: 888.9] | | | $ | [removed: 637.7] [added: 888.9] | |

| Average interest rate | | [removed: 4.1] [added: 3.7] | | % | | — | | % | | — | | % | | — | | % | | — | | % | | — | | % | | [removed: 4.1] [added: 3.7] | | % | | | | |

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinions on the Financial Statements] [added: Definition] and [added: Limitations of] Internal Control [removed: over] [added: Over] Financial [removed: Reporting][added: Reporting]

We have audited the [removed: accompanying] consolidated balance [removed: sheets] [added: sheet] of D.R. Horton, Inc. and its subsidiaries [added: (the “Company”)] as of September 30, [removed: 2018 and 2017] [added: 2018,] and the related consolidated statements of [removed: operations and comprehensive income,] [added: operations,] total equity, and cash flows for each of the [removed: three] [added: two] years in the period ended September 30, 2018, including the related notes (collectively referred to as the “consolidated financial statements”).

We [removed: also] have audited [removed: the Company's] [added: D.R Horton, Inc. and subsidiaries’] internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on criteria established in Internal [removed: Control - Integrated] [added: Control-Integrated] Framework [removed: (2013)] issued by the Committee of Sponsoring Organizations of the Treadway Commission [removed: (COSO).][added: (2013 framework) (the COSO criteria).]

In our opinion, the consolidated financial statements [removed: referred to above] present fairly, in all material respects, the financial position of the Company as of September 30, [removed: 2018 and 2017,] [added: 2018,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the [removed: three] [added: two] years in the period ended September 30, 2018 in conformity with accounting principles generally accepted in the United States of America.

[removed: Also in] [added: In] our opinion, [removed: the Company] [added: D.R. Horton, Inc. and subsidiaries (the Company)] maintained, in all material respects, effective internal control over financial reporting as of September 30, [removed: 2018,] [added: 2019,] based on [removed: criteria established in Internal Control - Integrated Framework (2013) issued by] the [removed: COSO.][added: COSO criteria.]

[removed: Basis] [added: Basis] for [removed: Opinions][added: Opinion]

The [removed: Company's] [added: Company’s] management is responsible for [removed: these consolidated financial statements, for] maintaining effective internal control over financial [removed: reporting,] [added: reporting] and for its assessment of the effectiveness of internal control over financial [removed: reporting,] [added: reporting] included in [removed: Management's] [added: the accompanying Management’s] Report on Internal Control [removed: over] [added: Over] Financial [removed: Reporting appearing under Item 9A.][added: Reporting.]

Our responsibility is to express [removed: opinions] [added: an opinion] on the Company’s [removed: consolidated financial statements and on the Company's] internal control over financial reporting based on our [removed: audits.][added: audit.]

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) [removed: ("PCAOB")] [added: (PCAOB)] and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our [removed: audits] [added: audit] in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the [removed: audits] [added: audit] to obtain reasonable assurance about whether [removed: the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether] effective internal control over financial reporting was maintained in all material respects.

Our audits [removed: of the consolidated financial statements] included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit [removed: of internal control over financial reporting] included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, [removed: and] testing and evaluating the design and operating effectiveness of internal control based on the assessed [removed: risk.][added: risk, and performing such other procedures as we considered necessary in the circumstances.]

We believe that our audits provide a reasonable basis for our [removed: opinions.][added: opinion.]

[removed: Definition and Limitations of] [added: Opinion on] Internal Control over Financial [removed: Reporting][added: Reporting]

A company’s internal control over financial reporting includes those policies and procedures that [removed: (i)] [added: (1)] pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; [removed: (ii)] [added: (2)] provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and [removed: (iii)] [added: (3)] provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Fort Worth, [removed: TX][added: Texas]

We have served as the Company’s auditor since [removed: 2008.][added: 2018.]

From time to time, we enter into forward sales of MBS as part of a program to offer below market interest rate financing to our homebuyers in certain markets.

At September 30, 2019, we had MBS totaling $111.4 million that did not yet have IRLCs or closed loans created or assigned and recorded a liability of $0.5 million for the fair value of such MBS position.

| Fixed rate | | $ | 716.4 | | | $ | 403.3 | | | $ | 350.4 | | | $ | 700.4 | | | $ | 351.5 | | | $ | — | | | $ | 2,522.0 | | | $ | 2,636.9 | |

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of D.R. Horton, Inc. and subsidiaries (the Company) as of September 30, 2019, and the related consolidated statements of operations, total equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 25, 2019 expressed an unqualified opinion thereon.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

| | |

| Estimation of reserves for construction defect matters | |

| *Description of the Matter* | At September 30, 2019, the Company’s reserve for legal claims related to construction defect matters was $432.8 million. As explained in Note K to the consolidated financial statements, the Company has established reserves for construction defect matters based on the estimated costs of pending legal claims and the estimated costs of anticipated future legal claims related to previously closed homes, and this liability is included within the accrued expenses and other liabilities account in the consolidated balance sheet. This reserve estimate is subject to a high degree of variability and ongoing revision as the circumstances of individual pending claims and historical data and trends change. Management applies judgment in determining the key assumptions used in calculating the reserve for construction defect matters. Auditing the reserve for construction defect matters is complex and especially challenging due to the judgmental nature of the key assumptions related to projections of the frequency of future claims and the costs to resolve claims in consideration of historical claims information. These assumptions are developed by management, are subjective in nature and have a significant effect on the determined amount of the reserve for construction defect matters. Further, the estimated reserve balance is sensitive to changes in these key assumptions. |

| *How We Addressed the Matter in Our Audit* | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for estimating the reserve for construction defect matters. We tested the Company’s controls that address the risk of material misstatement related to the measurement and valuation of the reserve for construction defect matters, including the key assumptions related to the projections of the frequency and costs of future claims, and the completeness and accuracy of data used in the model developed by management. To test the reserve for construction defect matters, our audit procedures included, among others, evaluating the methodology used, the key assumptions and the underlying data used by the Company in developing the reserve estimate. As management utilizes historical trends of frequency of claims incurred and the average cost to resolve claims relative to the types of products and markets where the Company operates in measuring the reserve estimate, we evaluated management’s methodology for determining the frequency and cost of future claims assumptions by comparing these key assumptions to trends observed in historical Company claims data and other available information. In addition, we involved an actuarial specialist to assist with our procedures. Our specialist developed a range of values for the reserve estimate based on independently selected assumptions, which we compared to management’s recorded amount to evaluate management’s estimate. We also performed sensitivity analyses to determine the effect of changes in assumptions, where appropriate. Finally, we reconciled historical data included in the model and performed recalculations to evaluate the completeness and accuracy of the underlying data used by management to determine the estimate. |

/s/ Ernst & Young LLP

November 25, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of D.R. Horton, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2019, the related consolidated statements of operations, total equity, and cash flows for the year then ended, and the related notes and our report dated November 25, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

Fort Worth, Texas

November 25, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of D.R. Horton, Inc.

Opinion on the Financial Statements

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

| Fixed rate | | $ | 504.5 | | | $ | 618.9 | | | $ | 400.0 | | | $ | 350.0 | | | $ | 700.0 | | | $ | — | | | $ | 2,573.4 | | | $ | 2,607.1 | |

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We construct and sell homes through our operating divisions in [removed: 81] [added: 90] markets [removed: in 27] [added: across 29] states, [added: primarily] under the names of D.R. Horton, [removed: America’s Builder,] [added: *America’s Builder*,] Emerald Homes, Express [removed: Homes, Freedom] Homes and [removed: Pacific Ridge] [added: Freedom] Homes.

For the year ended September 30, [removed: 2018,] [added: 2019,] we closed [removed: 51,857] [added: 56,975] homes with an average closing price of [removed: $298,900.][added: $297,100.]

Our homebuilding operations are our core business, generating 97% of our consolidated revenues of [added: $17.6 billion and] $16.1 billion in fiscal [removed: 2018] [added: 2019] and [added: 2018, respectively, and] 98% of our consolidated revenues of $14.1 billion [removed: and $12.2 billion] in fiscal [removed: 2017 and 2016, respectively.][added: 2017.]

Approximately [removed: 89%] [added: 90%] of our home sales revenue in fiscal [removed: 2018] [added: 2019] 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.

During fiscal 2018, we acquired 75% of the outstanding shares of Forestar Group Inc. (Forestar) for $558.3 million in [removed: cash (the acquisition).][added: cash.]

Forestar is a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” [removed: The acquisition] [added: Forestar] is a component of our [added: homebuilding] strategy to [removed: expand] [added: enhance operational efficiency and returns by expanding] relationships with land developers and [removed: increase] [added: increasing] the [removed: optioned] portion of our land and lot position [added: controlled under land purchase contracts] to enhance operational efficiency and returns.

[removed: Available Information][added: Available Information]

We make available, as soon as reasonably practicable, on our website, [removed: www.drhorton.com,] [added: *www.drhorton.com*,] all of our reports required to be filed with the Securities and Exchange Commission (SEC).

These reports can be found on the “Investor Relations” [removed: page] [added: section] of our website under “Financial Information” and include our annual and quarterly reports on Form 10-K and 10-Q (including related filings in XBRL format), current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports.

In addition to our SEC filings, our corporate governance documents, including our Code of Ethical Conduct for the Chief Executive Officer, Chief Financial Officer and senior financial officers, are available on the “Investor Relations” [removed: page] [added: section] of our website under “Corporate Governance.” Our stockholders may also obtain these documents in paper format free of charge upon request made to our Investor Relations department.

[removed: OPERATING] [added: OPERATING] STRUCTURE AND [removed: PROCESSES][added: PROCESSES]

[removed: Homebuilding Markets][added: Homebuilding Markets]

Our homebuilding business operates in [removed: 27 states and 81 markets,] [added: 90 markets across 29 states,] which provides us with geographic diversification in our homebuilding inventory investments and our sources of revenues and earnings.

| [removed: State] [added: State] | | [removed: Reporting Region/Market] [added: Reporting Region/Market] | | [removed: State] [added: State] | | [removed: Reporting Region/Market] [added: Reporting Region/Market] |

| | | [removed: East Region] [added: South Central Region] | | | | [removed: South Central Region] [added: Sacramento] |

| | | Northern Delaware | | | | [removed: Lafayette] [added: Huntsville] |

| [removed: Maryland] [added: Maryland] | | Baltimore | | [removed: Texas] | | [removed: Austin] [added: Montgomery] |

| | | Suburban Washington, D.C. | | | | [removed: Dallas] [added: Tuscaloosa] |

| [removed: New Jersey] [added: New Jersey] | | Northern New Jersey | | [added: Florida] | | Fort [removed: Worth] [added: Myers/Naples] |

| | | Southern New Jersey | | | | [removed: Houston] [added: Gainesville] |

| [removed: North Carolina] | | [removed: Charlotte] [added: Killeen/Temple/Waco] | | | | [removed: Killeen/Temple/Waco] [added: Reno] |

| | | [removed: Raleigh/Durham] [added: New Braunfels/San Marcos] | | | | [removed: New Braunfels/San Marcos] [added: Portland/Salem] |

| [removed: Pennsylvania] [added: Pennsylvania] | | Philadelphia | | | | [added: Orlando] |

| [added: Arizona] | | [removed: Columbia] [added: Phoenix] | | [removed: Arizona] | | [removed: Phoenix] [added: Vancouver] |

| | | Greenville/Spartanburg | | | | [removed: Tucson] [added: Tampa/Sarasota] |

| [added: New Mexico] | | [removed: Hilton Head] [added: Albuquerque] | | [removed: New Mexico] | | [removed: Albuquerque] |

| | | Myrtle Beach | | | | [added: West Palm Beach] |

| [removed: Virginia] | | [removed: Northern Virginia] [added: Indianapolis] | | | | [removed: West Region] [added: West Region] |

| | | Southern Virginia | | [removed: California] | | [removed: Bakersfield] [added: Augusta] |

| | | [removed: Midwest Region] [added: Midwest Region] | | [added: Tennessee] | | [removed: Fresno] [added: Chattanooga] |

| [removed: Colorado] | | [removed: Denver] [added: Columbus] | | | | Los Angeles County |

| | | Fort Collins | | | | [removed: Orange County] [added: Memphis] |

| [removed: Illinois] | | [removed: Chicago] | | | | Riverside County |

| [removed: Minnesota] [added: Minnesota] | | Minneapolis/St. Paul | | | | [removed: San Bernardino County] [added: Bay Area] |

| | | [added: Lafayette] | | | | San Diego County |

| | | [removed: Southeast Region] [added: East Region] | | | | [removed: Ventura County] [added: Southeast Region] |

| [removed: Alabama] [added: Delaware] | | [removed: Birmingham] [added: Central Delaware] | | [removed: Hawaii] [added: Alabama] | | [removed: Hawaii] [added: Birmingham] |

| [added: Georgia] | | [removed: Mobile/Baldwin County] [added: Savannah] | | | | [removed: Maui] [added: Mobile/Baldwin County] |

| | | [removed: Tuscaloosa] [added: Houston] | | [removed: Nevada] [added: Nevada] | | Las Vegas |

| | | [removed: Lakeland] [added: San Antonio] | | [removed: Utah] [added: Utah] | | Salt Lake City |

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.

In recent years, we have expanded our product offerings to include a broad range of homes for entry-level, move-up, active adult and luxury buyers across our markets.

Our entry-level homes at affordable price points have experienced very strong demand from homebuyers, as the entry-level segment of the new home market remains under-served, with low inventory levels relative to demand.

We owned approximately 66% of Forestar’s outstanding common stock at September 30, 2019.

| North Carolina | | Asheville | | | | Jacksonville |

| | | Charlotte | | | | Lakeland |

| | | Greensboro/Winston-Salem | | | | Melbourne/Vero Beach |

| | | Wilmington | | | | Ocala |

| Colorado | | Denver | | | | Knoxville |

| Illinois | | Chicago | | | | Nashville |

| Indiana | | Fort Wayne | | | | |

| Iowa | | Des Moines | | California | | Bakersfield |

| Ohio | | Cincinnati | | | | Fresno |

| Louisiana | | Baton Rouge | | | | San Bernardino County |

| Oklahoma | | Oklahoma City | | | | Ventura County |

| Texas | | Austin | | Hawaii | | Hawaii |

| | | Bryan/College Station | | | | Kauai |

| | | Dallas | | | | Maui |

| | | Fort Worth | | | | Oahu |

| | | Midland/Odessa | | Oregon | | Bend |

| | | Southwest Region | | | | Spokane |

| | | Tucson | | | | |

| • | Performance capabilities of our local management team. |

We also use names of acquired companies for a period of time after the acquisition.

We currently utilize the Pacific Ridge Homes brand in our Seattle, Washington market; the Westport Homes brand in our Indianapolis and Fort Wayne, Indiana and Columbus, Ohio markets; and the Terramor Homes brand in our Raleigh, North Carolina market.

We owned approximately 66% of Forestar’s outstanding common stock at September 30, 2019.

Forestar is making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform.

A shared services agreement is in place whereby we provide Forestar certain administrative, compliance, operational and procurement services.

Insurance Agency

Through our insurance agency subsidiary, we collect insurance commissions on homeowner policies placed with third party carriers.

DHI Communities is primarily focused on constructing garden style multi-family products, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets.

After DHI Communities has completed construction and achieved a stabilized occupancy rate, the property is typically marketed for sale.

During fiscal 2019, DHI Communities sold two multi-family rental properties for $133.4 million and recorded gains on sale totaling $51.9 million.

At September 30, 2019, DHI Communities had total assets of $204.0 million, which included property and equipment of $153.9 million and other assets of $28.9 million for a property held for sale.

During fiscal 2019, we acquired the homebuilding operations of Westport Homes, Classic Builders and Terramor Homes for $325.9 million.

The assets acquired included approximately 700 homes in inventory, 4,500 lots and control of approximately 4,300 additional lots through land purchase contracts.

We also acquired a sales order backlog of approximately 700 homes.

Westport Homes operates in Indianapolis and Fort Wayne, Indiana, and Columbus, Ohio; Classic Builders operates in Des Moines, Iowa; and Terramor Homes operates in Raleigh, North Carolina.

Further information regarding this acquisition is provided in the Business Acquisitions section included herein.

One of these subsidiaries, DHI Communities, is developing and constructing multi-family rental properties on land parcels we already owned and currently has four projects under active construction and two projects that are substantially complete.

At September 30, 2018 and 2017, property and equipment in the consolidated balance sheets included $171.4 million and $93.7 million, respectively, of assets owned by DHI Communities.

The combined assets of all of our subsidiaries engaged in other business activities totaled $198.9 million and $143.3 million at September 30, 2018 and 2017, respectively, and the combined pre-tax loss of these subsidiaries was $7.7 million, $11.7 million and $9.0 million in fiscal 2018, 2017 and 2016, respectively.

| Delaware | | Central Delaware | | Louisiana | | Baton Rouge |

| Georgia | | Savannah | | Oklahoma | | Oklahoma City |

| | | Greensboro/Winston-Salem | | | | Midland/Odessa |

| | | Wilmington | | | | San Antonio |

| South Carolina | | Charleston | | | | Southwest Region |

| | | | | | | Bay Area |

| Indiana | | Indianapolis | | | | Sacramento |

| | | Huntsville | | | | Kauai |

| | | Montgomery | | | | Oahu |

| Florida | | Fort Myers/Naples | | | | Reno |

| | | Jacksonville | | Oregon | | Portland/Salem |

| | | Ocala | | | | Vancouver |

| | | Orlando | | | | |

| | | Tampa/Sarasota | | | | |

| | | West Palm Beach | | | | |

| | | Augusta | | | | |

| Tennessee | | Knoxville | | | | |

| | | Nashville | | | | |

| | |

| --- | --- |

| • | Managing our supply of land/lots controlled (owned and optioned) in each market based on anticipated future home closing levels; |

| • | Utilizing land/lot option contracts, where possible; |

Our home designs are selected or prepared in each of our markets to appeal to the preferences of local homebuyers in each community.

On October 5, 2017, we acquired 75% of the outstanding shares of Forestar for $558.3 million in cash, pursuant to the terms of the June 2017 merger agreement approved by a vote of Forestar’s shareholders.

Forestar is a publicly traded residential lot development company with operations in 24 markets and 14 states as of September 30, 2018.

The transaction costs incurred by us related to this acquisition totaled $7.2 million, of which $5.3 million was incurred during fiscal 2018 and expensed to selling, general and administrative expense.

In September 2016, we acquired the homebuilding operations of Wilson Parker Homes, which operated in Atlanta and Augusta, Georgia; Raleigh, North Carolina; Columbia, South Carolina and Phoenix, Arizona.

In May and July of 2014, we received Notices of Violation from the United States Environmental Protection Agency [added: (EPA)] related to stormwater compliance at certain of our sites in our Southeast region.

In October 2018, we reached an agreement in principle with the [removed: United States Environmental Protection Agency] [added: EPA] to settle an alleged violation of the wetlands provisions of the Clean Water Act at one of our development sites in our Southeast region.

Upon finalizing the agreement in March 2019, we paid a penalty of $267,000 without an admission of liability.

We also are participating in settlement discussions with the U.S. Army Corps of Engineers (ACOE) and DOJ concerning alleged violations of the wetlands provisions of the Clean Water Act at another development site in our Southeast region relating to a violation notice the ACOE issued in April 2017.

This matter could potentially result in a settlement that includes a penalty of approximately $350,000 without an admission of liability.

We do not believe it is reasonably possible that this matter will result in a loss that would have a material effect on our consolidated financial position, results of operations or cash flows.

Upon finalizing the agreement, we expect we will be required to pay a penalty of $267,000.

[removed: UNITED] [added: UNITED] STATES SECURITIES AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[removed: ANNUAL] [added: | ☒ | ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF [added: THE SECURITIES EXCHANGE ACT OF 1934 |]

[added: | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF] THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934 |]

[removed: For] [added: For] the [removed: fiscal year ended September] [added: Fiscal Year Ended September] 30, [removed: 2018][added: 2019]

[removed: Commission] [added: Commission] file [removed: number 1-14122][added: number 1-14122]

[removed: D.R.] [added: D.R.] Horton, [removed: Inc.][added: Inc.]

[removed: (Exact] [added: *(Exact] name of registrant as specified in its [removed: charter)][added: charter)*]

| [removed: Delaware (State] [added: *(State] or other jurisdiction of incorporation or [removed: organization)] [added: organization)*] | | [removed: 75-2386963 (I.R.S.] [added: *(I.R.S.] Employer Identification [removed: No.)] [added: No.)*] |

[removed: | 1341 Horton Circle, Arlington, Texas] (Address of principal executive offices) [removed: | | 76011] (Zip [removed: Code) |][added: code)]

[removed: (817) 390-8200][added: (817) 390-8200]

[removed: (Registrant’s] [added: *(Registrant’s] telephone number, including area [removed: code)][added: code)*]

[removed: Securities] [added: | Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act: | | | | |]

| [removed: Title] [added: Title] of Each [removed: Class] [added: Class] | | [removed: Name] [added: Trading Symbol | | Name] of Each Exchange on Which [removed: Registered] [added: Registered] |

| Common Stock, par value $.01 per share | | [added: DHI | |] New York Stock Exchange |

| 5.750% Senior Notes due 2023 | | [added: DHI 23A | |] New York Stock Exchange |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the Act: [removed: None][added: None]

Yes [removed: o] [added: ☐] No ý

| Large accelerated filer [added: |] ý | | Accelerated filer [removed: o] | [added: ☐] | [added: |] Non-accelerated filer [removed: o] | [added: ☐] | [added: |] Smaller reporting company [removed: o] | [added: ☐] | [added: |] Emerging growth company [removed: o] | [added: ☐ |]

As of March 31, [removed: 2018,] [added: 2019,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $15,499,559,000] [added: $14.4 billion] based on the closing price as reported on the New York Stock Exchange.

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

Portions of the registrant’s definitive Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Stockholders are incorporated herein by reference (to the extent indicated) in Part III.

[removed: D.R.] [added: D.R.] HORTON, INC. AND [removed: SUBSIDIARIES][added: SUBSIDIARIES]

[removed: 2018 ANNUAL] [added: 2019 ANNUAL] REPORT ON FORM [removed: 10-K][added: 10-K]

[removed: TABLE] [added: TABLE] OF [removed: CONTENTS][added: CONTENTS]

| | | [removed: Page] [added: Page] |

[removed: | [PART I](#s2FE140799D45B0156BC9952D468C0B65) | | |][added: PART I]

| [ITEM [removed: 1.](#s391CE15A1A0B7655549D952D3F687431)] [added: 1.](#s6B491375322D4F924F9B79B235D751AE)] | [removed: [Business](#s391CE15A1A0B7655549D952D3F687431)] [added: [Business](#s6B491375322D4F924F9B79B235D751AE)] | [removed: [1](#s391CE15A1A0B7655549D952D3F687431)] [added: [1](#s6B491375322D4F924F9B79B235D751AE)] |

| [ITEM [removed: 1A.](#sDA0240E19BFA2D055DF4952D32DBA4FB)] [added: 1A.](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] | [Risk [removed: Factors](#sDA0240E19BFA2D055DF4952D32DBA4FB)] [added: Factors](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] | [removed: [12](#sDA0240E19BFA2D055DF4952D32DBA4FB)] [added: [12](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] |

| [ITEM [removed: 1B.](#s89A24065672142F97E85952D4700EEDA)] [added: 1B.](#s5CE19CD92EED7AC1766479B23FDA18B2)] | [Unresolved Staff [removed: Comments](#s89A24065672142F97E85952D4700EEDA)] [added: Comments](#s5CE19CD92EED7AC1766479B23FDA18B2)] | [removed: [23](#s89A24065672142F97E85952D4700EEDA)] [added: [23](#s5CE19CD92EED7AC1766479B23FDA18B2)] |

| [ITEM [removed: 2.](#s05AA3CE39D0D9C528CDC952D4735A890)] [added: 2.](#sF3A999FDB3594B0CB89679B23FFBA899)] | [removed: [Properties](#s05AA3CE39D0D9C528CDC952D4735A890)] [added: [Properties](#sF3A999FDB3594B0CB89679B23FFBA899)] | [removed: [23](#s05AA3CE39D0D9C528CDC952D4735A890)] [added: [23](#sF3A999FDB3594B0CB89679B23FFBA899)] |

| [ITEM [removed: 3.](#s22D7C03C195A1146F01D952D47548315)] [added: 3.](#sA0D32E77F291B0F5F34479B2402ED5A7)] | [Legal [removed: Proceedings](#s22D7C03C195A1146F01D952D47548315)] [added: Proceedings](#sA0D32E77F291B0F5F34479B2402ED5A7)] | [removed: [23](#s22D7C03C195A1146F01D952D47548315)] [added: [23](#sA0D32E77F291B0F5F34479B2402ED5A7)] |

| [ITEM [removed: 4.](#s2A2C99D6C2235469FA8D952D478699A0)] [added: 4.](#s84A59CD973AB34F7BBE179B2404D7FFF)] | [Mine Safety [removed: Disclosures](#s2A2C99D6C2235469FA8D952D478699A0)] [added: Disclosures](#s84A59CD973AB34F7BBE179B2404D7FFF)] | [removed: [23](#s2A2C99D6C2235469FA8D952D478699A0)] [added: [23](#s84A59CD973AB34F7BBE179B2404D7FFF)] |

| [ITEM [removed: 5.](#s985A2FE0F8CFB39BF1F9952D47DB6C69)] [added: 5.](#s349A46B944AB99C8037F79B225BB81FF)] | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s985A2FE0F8CFB39BF1F9952D47DB6C69)] [added: Securities](#s349A46B944AB99C8037F79B225BB81FF)] | [removed: [24](#s985A2FE0F8CFB39BF1F9952D47DB6C69)] [added: [24](#s349A46B944AB99C8037F79B225BB81FF)] |

| [ITEM [removed: 6.](#s798421B628A61D1B5190952D47FB881B)] [added: 6.](#s46017576A52A2973980B79B240D34B3E)] | [Selected Financial [removed: Data](#s798421B628A61D1B5190952D47FB881B)] [added: Data](#s46017576A52A2973980B79B240D34B3E)] | [removed: [26](#s798421B628A61D1B5190952D47FB881B)] [added: [26](#s46017576A52A2973980B79B240D34B3E)] |

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| [ITEM [removed: 8.](#s50B7AAB03370790A5352952D4A75FFFD)] [added: 8.](#s24FBC31D02AC4453C4BA79B244682630)] | [Financial Statements and Supplementary [removed: Data](#s50B7AAB03370790A5352952D4A75FFFD)] [added: Data](#s24FBC31D02AC4453C4BA79B244682630)] | [removed: [66](#s50B7AAB03370790A5352952D4A75FFFD)] [added: [60](#s24FBC31D02AC4453C4BA79B244682630)] |

| [ITEM [removed: 9.](#s91513F806FDE14543527952D503B5EF3)] [added: 9.](#s56538ED2E0B5F973991A79B24AEC199D)] | [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s91513F806FDE14543527952D503B5EF3)] [added: Disclosure](#s56538ED2E0B5F973991A79B24AEC199D)] | [removed: [120](#s91513F806FDE14543527952D503B5EF3)] [added: [113](#s56538ED2E0B5F973991A79B24AEC199D)] |

| | |

| (Mark One) | |

or

| | |

| --- | --- |

| | |

For the Transition Period From To

| Delaware | | 75-2386963 |

1341 Horton Circle

Arlington, Texas 76011

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

| | | | | |

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | |

As of November 13, 2019, there were 368,493,204 shares of the registrant’s common stock outstanding.

| [PART II](#s5AB5E8CEBC5701E1EE0D79B240801EC5) | | |

| [PART IV](#sB1C0D120320433A2240C79B24C8B05F7) | | |

| [SIGNATURES](#sA9D805DF7DFBDF3509D479B24CFFC396) | | [122](#sA9D805DF7DFBDF3509D479B24CFFC396) |

| | |

| --- | --- |

10-K 1 a2018930-10k.htm 10-K

| | | |

| --- | --- | --- |

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

As of November 7, 2018, there were 388,133,243 shares of the registrant’s common stock, par value $.01 per share, issued and 376,274,635 shares outstanding.

| [PART II](#s1751BD36F0F676608D17952D47A61C99) | | |

| [PART IV](#s565618B21D1B0ED3B800952D51BFC9A7) | | |

| [SIGNATURES](#s2DB8B81629AD2601B4AA952D52480B22) | | [129](#s2DB8B81629AD2601B4AA952D52480B22) |

Our homebuilding and Forestar operations own inventories of land, lots and homes, and DHI Communities owns multi-family rental properties [added: that are both completed and] under construction as part of the ordinary course of our business.

We also own office buildings totaling approximately 1.0 million square feet, and we lease approximately [removed: 515,000] [added: 580,000] square feet of office space under leases expiring through [removed: June] [added: December] 2024.

We [removed: own ranch land and improvements totaling approximately 93,600 acres, which we] use [added: this land] to conduct ranching and agricultural activities and to host company meetings and events.

We own ranch land and improvements totaling 93,600 acres, most of which has been owned for approximately 20 years.

[removed: PART II][added: PART II]

Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “DHI.” As of November [removed: 7, 2018,] [added: 13, 2019,] the closing price of our common stock on the NYSE was [removed: $37.59,] [added: $54.33,] and there were approximately [removed: 358] [added: 319] holders of record.

In November [removed: 2018,] [added: 2019,] our Board of Directors approved a cash dividend of [removed: $0.15] [added: $0.175] per common share, payable on December [removed: 10, 2018,] [added: 11, 2019,] to stockholders of record on November [removed: 26, 2018.][added: 27, 2019.]

The following table sets forth information concerning our common stock repurchases during the three months ended September 30, [removed: 2018.][added: 2019.]

| | [removed: Total] [added: Total] Number of Shares Purchased [removed: (1)] [added: (1)] | | | [removed: Average] [added: Average] Price Paid per [removed: Share] [added: Share] | | | | [removed: Total] [added: Total] Number of Shares Purchased as Part of Publicly Announced Plans or [removed: Programs] [added: Programs] | | | [removed: Approximate] [added: Approximate] Dollar Value of Shares that may yet be Purchased Under the Plans or Programs [removed: (1) (In millions)] [added: (1) (In millions)] | | |

During fiscal years [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

[removed: Stock] [added: Stock] Performance [removed: Graph][added: Graph]

The following graph illustrates the cumulative total stockholder return on D.R. Horton common stock for the last five fiscal years through September 30, [removed: 2018,] [added: 2019,] compared to the S&P 500 Index and the S&P 1500 Homebuilding Index.

The comparison assumes a hypothetical investment in D.R. Horton common stock and in each of the foregoing indices of $100 at September 30, [removed: 2013] [added: 2014] and assumes that all dividends were reinvested.

[removed: Comparison] [added: Comparison] of Five-Year Cumulative Total [removed: Return][added: Return]

[removed: Among] [added: Among] D.R. Horton, Inc., S&P 500 Index and S&P 1500 Homebuilding [removed: Index][added: Index]

[removed: ][added: ]

| | [removed: Year] [added: Year] Ended September [removed: 30,] [added: 30,] | | | | | | | | | | | | | | | | | | | | | | |

| | [removed: 2013] [added: 2014] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2018] [added: 2019] | | |

| July 1, 2019 - July 31, 2019 | — | | | $ | — | | | — | | | $ | 1,000.0 | |

| August 1, 2019 - August 31, 2019 | 924,297 | | | 48.45 | | | | 924,297 | | | 955.2 | | |

| September 1, 2019 - September 30, 2019 | 1,200,000 | | | 49.60 | | | | 1,200,000 | | | 895.7 | | |

| Total | 2,124,297 | | | $ | 49.10 | | | 2,124,297 | | | $ | 895.7 | |

| (1) | Effective July 30, 2019, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock, which replaced the previous authorization that we used to repurchase 9.8 million shares of our common stock during the nine months ended June 30, 2019. The new authorization has no expiration date. During August and September 2019, we purchased 2.1 million shares of our common stock for $104.3 million, resulting in a remaining authorization of $895.7 million at September 30, 2019. |

| D.R. Horton, Inc. | $ | 100.00 | | | $ | 144.45 | | | $ | 150.18 | | | $ | 201.09 | | | $ | 214.77 | | | $ | 272.36 | |

| S&P 500 Index | 100.00 | | | | 99.39 | | | | 114.72 | | | | 136.07 | | | | 160.44 | | | | 167.27 | | |

| S&P 1500 Homebuilding Index | 100.00 | | | | 121.48 | | | | 120.76 | | | | 167.16 | | | | 158.10 | | | | 212.29 | | |

| July 1, 2018 - July 31, 2018 | 640,000 | | | $ | 43.94 | | | 640,000 | | | $ | — | |

| August 1, 2018 - August 31, 2018 | 560,000 | | | 43.78 | | | | 560,000 | | | 375.5 | | |

| September 1, 2018 - September 30, 2018 | — | | | — | | | | — | | | 375.5 | | |

| Total | 1,200,000 | | | $ | 43.87 | | | 1,200,000 | | | $ | 375.5 | |

| (1) | Shares purchased in July 2018 for $28.1 million were part of a $200 million common stock repurchase authorization that expired July 31, 2018. The dollar value of shares that could be purchased following these transactions was $97.0 million up to expiration of this authorization. Effective August 1, 2018, our Board of Directors authorized the repurchase of up to $400 million of our common stock effective through September 30, 2019. During August 2018, we purchased 560,000 shares of our common stock for $24.5 million, resulting in a remaining authorization of $375.5 million at September 30, 2018. |

| D.R. Horton, Inc. | $ | 100.00 | | | $ | 106.24 | | | $ | 153.42 | | | $ | 159.48 | | | $ | 213.53 | | | $ | 228.09 | |

| S&P 500 Index | 100.00 | | | | 119.73 | | | | 119.00 | | | | 137.36 | | | | 162.92 | | | | 192.10 | | |

| S&P 1500 Homebuilding Index | 100.00 | | | | 102.99 | | | | 125.11 | | | | 124.37 | | | | 172.15 | | | | 162.82 | | |

| | [removed: Year] [added: Year] Ended September [removed: 30,] [added: 30,] | | | | | | | | | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| | | | | | [removed: (In] [added: (In] millions, except per share [removed: data)] [added: data)] | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] Operating [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Revenues [added: (1)] | $ | [removed: 16,068.0] [added: 17,592.9] | | | $ | [removed: 14,091.0] [added: 16,068.0] | | | $ | [removed: 12,157.4] [added: 14,091.0] | | | $ | [removed: 10,824.0] [added: 12,157.4] | | | $ | [removed: 8,024.9] [added: 10,824.0] | |

| Cost of sales | [removed: 12,398.1] [added: 13,720.9] | | | | [removed: 11,042.8] [added: 12,398.1] | | | | [removed: 9,502.6] [added: 11,042.8] | | | | [removed: 8,535.7] [added: 9,502.6] | | | | [removed: 6,268.6] [added: 8,535.7] | | |

| Selling, general and administrative expense | [removed: 1,676.8] [added: 1,832.5] | | | | [removed: 1,471.6] [added: 1,676.8] | | | | [removed: 1,320.3] [added: 1,471.6] | | | | [removed: 1,186.0] [added: 1,320.3] | | | | [removed: 965.4] [added: 1,186.0] | | |

| Income before income taxes | [removed: 2,060.0] [added: 2,125.3] | | | | [removed: 1,602.1] [added: 2,060.0] | | | | [removed: 1,353.5] [added: 1,602.1] | | | | [removed: 1,123.4] [added: 1,353.5] | | | | [removed: 814.2] [added: 1,123.4] | | |

| Income tax expense | [removed: 597.7] [added: 506.7] | | | | [removed: 563.7] [added: 597.7] | | | | [removed: 467.2] [added: 563.7] | | | | [removed: 372.7] [added: 467.2] | | | | [removed: 280.7] [added: 372.7] | | |

| Net income attributable to D.R. Horton, Inc. | [removed: 1,460.3] [added: 1,618.5] | | | | [removed: 1,038.4] [added: 1,460.3] | | | | [removed: 886.3] [added: 1,038.4] | | | | [removed: 750.7] [added: 886.3] | | | | [removed: 533.5] [added: 750.7] | | |

| Basic | [removed: 3.88] [added: 4.34] | | | | [removed: 2.77] [added: 3.88] | | | | [removed: 2.39] [added: 2.77] | | | | [removed: 2.05] [added: 2.39] | | | | [removed: 1.57] [added: 2.05] | | |

| Diluted | [removed: 3.81] [added: 4.29] | | | | [removed: 2.74] [added: 3.81] | | | | [removed: 2.36] [added: 2.74] | | | | [removed: 2.03] [added: 2.36] | | | | [removed: 1.50] [added: 2.03] | | |

| Cash dividends declared per common share | [removed: 0.50] [added: 0.60] | | | | [removed: 0.40] [added: 0.50] | | | | [removed: 0.32] [added: 0.40] | | | | [removed: 0.25] [added: 0.32] | | | | [removed: 0.1375] [added: 0.25] | | |

| | [removed: September 30,] [added: September 30,] | | | | | | | | | | | | | | | | | | |

| | [removed: (In millions)] [added: (In millions)] | | | | | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] Balance Sheet [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Cash and cash equivalents | $ | [removed: 1,473.1] [added: 1,494.3] | | | $ | [removed: 1,007.8] [added: 1,473.1] | | | $ | [removed: 1,303.2] [added: 1,007.8] | | | $ | [removed: 1,383.8] [added: 1,303.2] | | | $ | [removed: 661.8] [added: 1,383.8] | |

| Inventories | [removed: 10,395.0] [added: 11,282.0] | | | | [removed: 9,237.1] [added: 10,395.0] | | | | [removed: 8,340.9] [added: 9,237.1] | | | | [removed: 7,807.0] [added: 8,340.9] | | | | [removed: 7,700.5] [added: 7,807.0] | | |

| Total assets | [removed: 14,114.6] [added: 15,606.6] | | | | [removed: 12,184.6] [added: 14,114.6] | | | | [removed: 11,558.9] [added: 12,184.6] | | | | [removed: 11,151.0] [added: 11,558.9] | | | | [removed: 10,185.4] [added: 11,151.0] | | |

| Notes payable | [removed: 3,203.5] [added: 3,399.4] | | | | [removed: 2,871.6] [added: 3,203.5] | | | | [removed: 3,271.3] [added: 2,871.6] | | | | [removed: 3,811.5] [added: 3,271.3] | | | | [removed: 3,665.7] [added: 3,811.5] | | |

| Stockholders’ equity | [removed: 8,984.4] [added: 10,020.9] | | | | [removed: 7,747.1] [added: 8,984.4] | | | | [removed: 6,792.5] [added: 7,747.1] | | | | [removed: 5,894.3] [added: 6,792.5] | | | | [removed: 5,115.8] [added: 5,894.3] | | |

| Total equity | [removed: 9,158.9] [added: 10,295.1] | | | | [removed: 7,747.6] [added: 9,158.9] | | | | [removed: 6,793.0] [added: 7,747.6] | | | | [removed: 5,895.4] [added: 6,793.0] | | | | [removed: 5,119.7] [added: 5,895.4] | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| Total liabilities | 5,311.5 | | | | 4,955.7 | | | | 4,437.0 | | | | 4,765.9 | | | | 5,255.6 | | |

| Net income | 1,462.3 | | | | 1,038.4 | | | | 886.3 | | | | 750.7 | | | | 533.5 | | |

| Net income attributable to noncontrolling interests | 2.0 | | | | — | | | | — | | | | — | | | | — | | |

[removed: D.R.] [added: D.R.] HORTON, INC. AND [removed: SUBSIDIARIES][added: SUBSIDIARIES]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| | [removed: September 30,] [added: September 30,] | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | [added: | 2017 | | |]

| | [removed: (In millions)] [added: (In millions)] | | | | | | |

| [removed: ASSETS] [added: ASSETS] | | | | | | | |

| Cash and cash equivalents | $ | [removed: 1,473.1] [added: 1,494.3] | | | $ | [removed: 1,007.8] [added: 1,473.1] | |

| Restricted cash | [removed: 32.9] [added: 19.7] | | | | [removed: 16.5] [added: 32.9] | | |

| Construction in progress and finished homes | [removed: 5,086.3] [added: 5,245.0] | | | | [removed: 4,606.0] [added: 5,086.3] | | |

| Residential land and lots — developed and under development | [removed: 5,172.4] [added: 5,939.4] | | | | [removed: 4,519.7] [added: 5,172.4] | | |

| Land held for development | [removed: 96.1] [added: 77.8] | | | | [removed: 101.0] [added: 96.1] | | |

| Land held for sale | [removed: 40.2] [added: 19.8] | | | | [removed: 10.4] [added: 40.2] | | |

| Investment in unconsolidated entities | [removed: 11.0] [added: 6.5] | | | | [removed: —] [added: 11.0] | | |

| Mortgage loans held for sale | [removed: 796.4] [added: 1,072.0] | | | | [removed: 587.3] [added: 796.4] | | |

| Deferred income taxes, net of valuation allowance of [removed: $17.7] [added: $18.7] million and [removed: $11.2] [added: $17.7] million at September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively | [removed: 194.0] [added: 163.1] | | | | [removed: 365.0] [added: 194.0] | | |

| Property and equipment, net | [removed: 401.1] [added: 462.2] | | | | [removed: 325.0] [added: 401.1] | | |

| Other assets | [removed: 701.9] [added: 943.3] | | | | [removed: 565.9] [added: 701.9] | | |

| Goodwill | [removed: 109.2] [added: 163.5] | | | | [removed: 80.0] [added: 109.2] | | |

| Total assets | $ | [removed: 14,114.6] [added: 15,606.6] | | | $ | [removed: 12,184.6] [added: 14,114.6] | |

| [removed: LIABILITIES] [added: LIABILITIES] | | | | | | | |

| Accounts payable | $ | [removed: 624.7] [added: 634.0] | | | $ | [removed: 580.4] [added: 624.7] | |

| Accrued expenses and other liabilities | [removed: 1,127.5] [added: 1,278.1] | | | | [removed: 985.0] [added: 1,127.5] | | |

| Notes payable | [removed: 3,203.5] [added: 3,399.4] | | | | [removed: 2,871.6] [added: 3,203.5] | | |

| Total liabilities | [removed: 4,955.7] [added: 5,311.5] | | | | [removed: 4,437.0] [added: 4,955.7] | | |

| [removed: EQUITY] [added: EQUITY] | | | | | | | |

| Common stock, $.01 par value, 1,000,000,000 shares authorized, [removed: 388,120,243] [added: 392,172,821] shares issued and [removed: 376,261,635] [added: 368,431,454] shares outstanding at September 30, [removed: 2018] [added: 2019] and [removed: 384,036,150] [added: 388,120,243] shares issued and [removed: 374,986,079] [added: 376,261,635] shares outstanding at September 30, [removed: 2017] [added: 2018] | 3.9 | | | | [removed: 3.8] [added: 3.9] | | |

| Additional paid-in capital | [removed: 3,085.0] [added: 3,179.1] | | | | [removed: 2,992.2] [added: 3,085.0] | | |

| Retained earnings | [removed: 6,217.9] [added: 7,640.1] | | | | [removed: 4,946.0] [added: 6,217.9] | | |

| Treasury stock, [removed: 11,858,608] [added: 23,741,367] shares and [removed: 9,050,071] [added: 11,858,608] shares at September 30, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] respectively, at cost | [removed: (322.4] [added: (802.2] | | ) | | [removed: (194.9] [added: (322.4] | | ) |

| Stockholders’ equity | [removed: 8,984.4] [added: 10,020.9] | | | | [removed: 7,747.1] [added: 8,984.4] | | |

| Noncontrolling interests | [removed: 174.5] [added: 274.2] | | | | [removed: 0.5] [added: 174.5] | | |

| Total equity | [removed: 9,158.9] [added: 10,295.1] | | | | [removed: 7,747.6] [added: 9,158.9] | | |

| Total liabilities and equity | $ | [removed: 14,114.6] [added: 15,606.6] | | | $ | [removed: 12,184.6] [added: 14,114.6] | |

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: OPERATIONS AND COMPREHENSIVE INCOME][added: OPERATIONS]

| | [removed: Year] [added: Year] Ended September [removed: 30,] [added: 30,] | | | | | | | | | | |

| | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | |

| | [removed: (In] [added: (In] millions, except per share [removed: data)] [added: data)] | | | | | | | | | | |

| Revenues | $ | [removed: 16,068.0] [added: 17,592.9] | | | $ | [removed: 14,091.0] [added: 16,068.0] | | | $ | [removed: 12,157.4] [added: 14,091.0] | |

| Cost of sales | [removed: 12,398.1] [added: 13,720.9] | | | | [removed: 11,042.8] [added: 12,398.1] | | | | [removed: 9,502.6] [added: 11,042.8] | | |

| Selling, general and administrative expense | [removed: 1,676.8] [added: 1,832.5] | | | | [removed: 1,471.6] [added: 1,676.8] | | | | [removed: 1,320.3] [added: 1,471.6] | | |

| | 2019 | | | | 2018 | | |

| Total cash, cash equivalents and restricted cash | 1,514.0 | | | | 1,506.0 | | |

| Total inventory | 11,282.0 | | | | 10,395.0 | | |

D.R. HORTON, INC. AND SUBSIDIARIES

D.R. HORTON, INC. AND SUBSIDIARIES

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | | | | | |

| Cumulative effect of adoption of ASC 606 (see Note A) | — | | | | — | | | | 27.1 | | | | — | | | | — | | | | 27.1 | | |

| Net income | — | | | | — | | | | 1,618.5 | | | | — | | | | 0.1 | | | | 1,618.6 | | |

| Cash dividends declared ($0.60 per share) | — | | | | — | | | | (223.4 | | ) | | — | | | | — | | | | (223.4 | | ) |

| Repurchases of common stock (11,882,759 shares) | — | | | | — | | | | — | | | | (479.8 | | ) | | — | | | | (479.8 | | ) |

| Change of ownership interest in Forestar | — | | | | (2.1 | | ) | | — | | | | — | | | | 103.5 | | | | 101.4 | | |

| Balances at September 30, 2019 (368,431,454 shares) | $ | 3.9 | | | $ | 3,179.1 | | | $ | 7,640.1 | | | $ | (802.2 | ) | | $ | 274.2 | | | $ | 10,295.1 | |

D.R. HORTON, INC. AND SUBSIDIARIES

| Equity in earnings of unconsolidated entities | (0.5 | | ) | | (2.8 | | ) | | — | | |

| Net proceeds from issuance of Forestar common stock | 100.7 | | | | — | | | | — | | |

| Net increase (decrease) in cash, cash equivalents and restricted cash | 8.0 | | | | 481.7 | | | | (288.4 | | ) |

D.R. HORTON, INC. AND SUBSIDIARIES

D.R. HORTON, INC. AND SUBSIDIARIES

Reclassifications

In connection with the adoption of Accounting Standards Update (ASU) 2016-18 in fiscal 2019, restricted cash is now included with cash and cash equivalents when reconciling beginning and ending amounts in the consolidated statements of cash flows.

Prior year amounts have been reclassified to conform to the current year presentation, resulting in an increase in cash provided by investing activities of $16.4 million for fiscal 2018 and a decrease in cash used in investing activities of $7.0 million for fiscal 2017.

Adoption of New Accounting Standard

On October 1, 2018, the Company adopted Accounting Standards Codification 606, "Revenue from Contracts with Customers" (ASC 606), which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer in an amount that reflects the consideration expected to be received in exchange for those goods or services.

The Company applied the modified retrospective method to contracts that were not completed as of October 1, 2018.

Results for fiscal 2019 are presented under ASC 606, while prior year amounts were not adjusted and will continue to be reported under the previous accounting standards.

The Company recorded an increase to retained earnings of $27.1 million, net of tax, as of October 1, 2018, due to the cumulative effect of adopting ASC 606, which was primarily related to the recognition of contract assets totaling $32.4 million for insurance brokerage commission renewals.

Under ASC 606, the Company recognizes revenue and a contract asset for estimated future renewals of these policies upon issuance of the initial policy, the date at which the performance obligation is satisfied.

There was not a material impact to fiscal 2019 revenues as a result of applying ASC 606, and there have not been significant changes to the Company’s business processes, systems, or internal controls as a result of implementing the standard.

The Company’s performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date.

D.R. HORTON, INC. AND SUBSIDIARIES

When the Company executes sales contracts with its homebuyers, or when it requires advance payment from homebuyers for custom changes, upgrades or options related to their homes, the cash deposits received are recorded as liabilities until the homes are closed or the contracts are cancelled.

The Company either retains or refunds to the homebuyer deposits on cancelled sales contracts, depending upon the applicable provisions of the contract or other circumstances.

The Company rarely purchases land for resale, but periodically may elect to sell parcels of land that no longer fit into its strategic operating plans.

Revenue from land sales is typically recognized on the closing date, which is generally when performance obligations are satisfied.

Revenues associated with the Company’s mortgage operations primarily include net gains on the sale of mortgage loans and servicing rights.

The Company collects insurance commissions on homeowner policies placed with third party carriers through its 100% owned insurance agency.

The Company recognizes revenue and a contract asset for estimated future renewals of these policies upon issuance of the initial policy, the date at which the performance obligation is satisfied.

Proceeds from home closings held for the Company’s benefit at title companies, which totaled $244.8 million at September 30, 2019, are included in homebuilding cash and cash equivalents in the consolidated balance sheets.

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | 10,395.0 | | | | 9,237.1 | | |

| Goodwill impairment | — | | | | — | | | | 7.2 | | |

| Other comprehensive income, net of income tax: | | | | | | | | | | | |

| Net change in unrealized gain | — | | | | — | | | | 1.2 | | |

| Reclassification adjustment for net gain realized in net income | — | | | | — | | | | (2.6 | | ) |

| Comprehensive income attributable to noncontrolling interests | 2.0 | | | | — | | | | — | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balances at September 30, 2015 (368,647,371 shares) | $ | 3.8 | | | $ | 2,733.8 | | | $ | 3,289.6 | | | $ | (134.3 | ) | | $ | 1.4 | | | $ | 1.1 | | | $ | 5,895.4 | |

| Issuances under employee benefit plans (89,652 shares) | — | | | | 2.2 | | | | — | | | | — | | | | — | | | | — | | | | 2.2 | | |

| Cash dividends declared | — | | | | — | | | | (118.7 | | ) | | — | | | | — | | | | — | | | | (118.7 | | ) |

| Other comprehensive income, net of tax | — | | | | — | | | | — | | | | — | | | | (1.4 | | ) | | — | | | | (1.4 | | ) |

| Net income | — | | | | — | | | | 1,038.4 | | | | — | | | | — | | | | — | | | | 1,038.4 | | |

| Issuances under employee benefit plans (111,527 shares) | — | | | | 2.8 | | | | — | | | | — | | | | — | | | | — | | | | 2.8 | | |

| Net income | $ | 1,462.3 | | | $ | 1,038.4 | | | $ | 886.3 | |

| (Increase) decrease in restricted cash | (16.4 | | ) | | (7.0 | | ) | | 0.2 | | |

| Excess income tax benefit from employee stock awards | — | | | | 14.3 | | | | 10.0 | | |

| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 465.3 | | | | (295.4 | | ) | | (80.6 | | ) |