D.R. Horton (DHI) 10-K risk factor changes: FY2020 vs FY2019

[removed: | • |] [added: -] employment levels; [removed: |]

[removed: | • |] [added: -] consumer confidence and spending; [removed: |]

[removed: | • |] [added: -] housing demand; [removed: |]

[removed: | • |] [added: -] availability of financing for homebuyers; [removed: |]

[removed: | • |] [added: -] interest rates; [removed: |]

[removed: | • |] [added: -] availability and prices of new homes for sale and alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes and rental properties; and [removed: |]

[removed: | • |] [added: -] demographic trends. [removed: |]

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, [removed: related] domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

[removed: Public] [added: Public] health issues such as a major epidemic or pandemic could adversely affect our [removed: business.][added: business or financial results.]

The U.S. and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public [added: health and public] perception of health risk.

Our homebuilding operations utilize a $1.59 billion [added: 5-year] senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments.

Our [added: 5-year] homebuilding revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment.

The maturity date of [removed: such] [added: the 5-year] facility is October 2, 2024.

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

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

Our mortgage subsidiary utilizes a [removed: $900 million] [added: $1.35 billion] mortgage repurchase facility to finance the majority of the loans it originates.

The capacity of the facility [removed: increases,] [added: increased,] without requiring additional commitments, to [removed: $1.1] [added: $1.575] billion for approximately 45 days [removed: at fiscal year end.][added: around September 30, 2020 and increases again for approximately 30 days around December 31, 2020.]

The capacity can also be increased to [removed: $1.2] [added: $1.8] billion subject to the availability of additional commitments.

The mortgage repurchase facility must be renewed annually and currently expires on February [removed: 21, 2020.][added: 19, 2021.]

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, [added: pay dividends, repurchase our common stock] and support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.

[removed: We have] [added: D.R. Horton has] an automatically effective universal shelf registration statement filed with the SEC in August 2018, registering debt and equity securities that [removed: we] may [removed: issue] [added: be issued] from time to time in amounts to be determined.

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

As market conditions permit, we may issue new debt or equity securities through the [removed: public] capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity.

We believe that our existing cash resources, [removed: our homebuilding] revolving credit [removed: facility, our] [added: facilities,] mortgage repurchase facility and [removed: our] ability to access the capital markets [added: or obtain additional financing] will provide sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of [removed: $500] [added: $400] million aggregate principal amount of [added: our] homebuilding senior notes in fiscal [removed: 2020.][added: 2021.]

Adverse changes in economic, homebuilding or capital market conditions [added: due to C-19 or otherwise] could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

The mortgage loans originated by our financial services operations are primarily eligible for sale to Fannie Mae, Freddie Mac [removed: and] [added: or] Ginnie Mae and are [added: typically] sold to third-party purchasers.

Some of our customers may qualify for 100% financing through programs offered by the [removed: VA,] [added: VA and the] USDA and certain other housing finance agencies.

Mortgage rates are currently low [removed: as] compared to most historical periods; however, [removed: the Federal Reserve Board] [added: market conditions] could [removed: raise its benchmark rate.][added: change causing mortgage rates to rise in the future.]

Forestar is a publicly traded residential lot development company with operations in [removed: 51] [added: 49] markets [removed: and 20] [added: across 21] states as of September 30, [removed: 2019.][added: 2020.]

[removed: Forestar] [added: Forestar’s strategy] is [added: focused on] making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national [removed: platform.][added: platform and consolidating market share in the fragmented U.S. lot development industry.]

Customers and other interested parties value readily available information and often act on such information without further investigation and without [removed: regard to its accuracy.]

[added: 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.

[removed: | • |] [added: -] difficulty in acquiring land suitable for residential building at affordable prices in locations where our potential customers want to live; [removed: |]

[removed: | • |] [added: -] shortages of qualified subcontractors; [removed: |]

[removed: | • |] [added: -] reliance on local subcontractors, manufacturers, distributors and land developers who may be inadequately capitalized; [removed: |]

[removed: | • |] [added: -] shortages of materials; and [removed: |]

[removed: | • | volatile] [added: - significant] increases in the cost of materials, particularly increases in the price of lumber, drywall and cement, which are significant components of home construction costs. [removed: |]

If the level of new home demand increases significantly in future periods, the risk of shortages [added: and cost increases] in residential lots, labor and materials available to the homebuilding industry will likely increase.

At September 30, [removed: 2019,] [added: 2020,] we had [removed: $1.7] [added: $1.8] billion of outstanding surety bonds.

[removed: Prior to the enactment of the Tax Cuts and Jobs Act (Tax Act), which was enacted into law on December 22, 2017, significant] [added: Significant] expenses of owning a home, including mortgage loan interest and state and local [added: income and property] taxes, [removed: generally were] [added: have historically been] deductible expenses for an individual’s federal income taxes, subject to various limitations.

Risks Related to our Business and our Industry

In December 2019, C-19 emerged in the Wuhan region of China and subsequently spread worldwide.

The World Health Organization declared C-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time.

In almost all of the municipalities across the U.S. where we operate, residential construction and financial services have been deemed essential businesses as part of critical infrastructure, and we have continued our homebuilding, lot development and financial services operations in those markets where allowed.

We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence.

There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers.

The extent to which C-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If C-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

We also have a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments.

The maturity date of the 364-day facility is May 27, 2021.

At September 30, 2020, $394.3 million remained available, and $100 million of this availability is reserved for sales under Forestar’s at-the-market equity offering program established in August 2020.

During fiscal 2020, approximately 66% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae and 28% were sold to two other major financial entities.

In the latter part of fiscal 2020, due to reduced liquidity in the secondary market related to remedies provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to borrowers of residential loans, we began retaining mortgage servicing rights on some of our originations.

As servicer for these loans, we may have to advance payments to the mortgage-backed securities (MBS) bondholders to the extent there are insufficient collections to satisfy the required principal and interest remittances of the underlying mortgage-backed securities.

In October 2017, we acquired 75% of the outstanding shares of Forestar and at September 30, 2020, we owned 65% of its outstanding shares.

The Tax Cuts and Jobs Act, which became effective January 1, 2018, established new limits on these federal tax deductions that could reduce the actual or perceived affordability of homeownership.

Government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our profit margins and adversely affect our results of operations.

This is a particular concern in the western United States, where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted, and where we have business operations.

Risks Related to our Indebtedness

under this facility.

General Risk Factors

regard to its accuracy.

Our normal business activities involve collecting and storing information specific to our homebuyers, employees, vendors and suppliers and maintaining operational and financial information related to our business, both in an office setting and remote locations as needed.

The European Union and other international regulators, as well as state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act, and other governments are considering establishing similar or stronger protections.

These regulations impose certain obligations for handling specified personal information in our systems, and for apprising individuals of the information we have collected about them.

We have incurred costs in an effort to comply with these requirements, and our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights.

Any noncompliance could result in our incurring substantial penalties and reputational damage, and also could result in litigation.

Our increased use of remote work environments and virtual platforms in response to C-19 may also increase our risk of cyber-attack or data security breaches.

| | |

| --- | --- |

In the event of a widespread, prolonged, actual or perceived outbreak of a contagious disease, our operations could be negatively impacted by a reduction in customer traffic or other factors which could reduce demand for new homes.

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.

During fiscal 2019, approximately 93% of the mortgage loans sold by DHI Mortgage were sold to four major financial entities, the largest percentage of which purchased 32% of the total loans sold.

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

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

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

The Tax Act established new limits on the federal tax deductions individual taxpayers may take on mortgage loan interest payments and on state and local taxes, including property taxes.

Any further change in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership could adversely affect demand for and sales prices of new homes.

In fiscal 2013, our mortgage subsidiary was subpoenaed by the United States Department of Justice (DOJ) regarding the adequacy of certain underwriting and quality control processes related to FHA loans originated and sold in prior years.

We have provided information related to these loans and our processes to the DOJ, and communications are ongoing.

The DOJ has to date not asserted any formal claim amount, penalty or fine.

Due to the significant increases in regulations in recent years, operating costs have increased for our mortgage operations.

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

We [removed: remain focused on growing our revenues and profitability, generating consistently] [added: plan to continue to generate] strong [removed: annual] cash flows from [added: our homebuilding] operations and [removed: managing] [added: manage] our product offerings, [added: incentives, home] pricing, sales pace and inventory levels to optimize the return on our inventory [removed: investments.][added: investments in each of our communities based on local housing market conditions.]

In fiscal [removed: 2019,] [added: 2020,] our number of homes closed and home sales revenues increased [removed: 10%] [added: 15%] and [removed: 9%,] [added: 16%,] respectively, compared to the prior [added: year, and our consolidated revenues increased 15% to $20.3 billion compared to $17.6 billion in the prior] year.

Our pre-tax income was [added: $3.0 billion in fiscal 2020 compared to] $2.1 billion in [removed: both] fiscal [removed: 2019] [added: 2019,] and [removed: 2018.][added: our pre-tax operating margin was 14.7% compared to 12.1%.]

Cash provided by our homebuilding operations was [removed: $1.4] [added: $1.9] billion in fiscal [removed: 2019] [added: 2020] compared to [removed: $1.0] [added: $1.4] billion in fiscal [removed: 2018.][added: 2019.]

In fiscal [added: 2020, our return on equity (ROE) was 22.1% compared to 17.2% in fiscal] 2019, [added: and] our homebuilding return on inventory (ROI) was [removed: 18.1%] [added: 24.6%] compared to [removed: 20.2% in fiscal 2018.][added: 18.1%.]

Homebuilding ROI is calculated as homebuilding pre-tax income for the year divided by average [removed: inventory.][added: inventory, where average inventory is the sum of ending homebuilding inventory balances for the trailing five quarters divided by five.]

[removed: Average inventory in] [added: ROE is calculated as net income attributable to D.R. Horton for] the [removed: ROI calculation] [added: year divided by average stockholders’ equity, where average stockholders’ equity] is the sum of ending [removed: inventory] [added: stockholders’ equity] balances [removed: for] [added: of] the trailing five quarters divided by five.

Within our homebuilding land and lot portfolio, our lots controlled under purchase contracts represent [removed: 60%] [added: 70%] of the lots owned and controlled at September 30, [removed: 2019] [added: 2020] compared to [removed: 57%] [added: 60%] at September 30, [removed: 2018.][added: 2019.]

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

[removed: | • |] [added: -] 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. [removed: |]

[removed: | • |] [added: -] Maintaining a strong cash balance and overall liquidity position and controlling our level of debt. [removed: |]

[removed: | • |] [added: -] Allocating and actively managing our inventory investments across our operating markets to diversify our geographic risk. [removed: |]

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

[removed: | • |] [added: -] Modifying product offerings, sales pace, home prices and sales incentives as necessary in each of our markets to meet consumer demand and maintain affordability. [removed: |]

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

[removed: | • |] [added: -] Managing our inventory of homes under construction relative to demand in each of our [removed: markets,] [added: markets] including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory. [removed: |]

[removed: | • |] [added: -] Investing in land and land development in desirable markets, while controlling the level of land and lots we own in each [removed: of our markets] [added: market] relative to the local new home demand. [removed: |]

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

[removed: | • |] [added: -] Opportunistically [removed: pursuing] [added: evaluating potential] acquisitions to enhance our operations and improve returns. [removed: |]

[removed: | • |] [added: -] Controlling the cost of goods purchased from both vendors and subcontractors. [removed: |]

[removed: | • |] [added: -] Improving the efficiency of our land development, construction, sales and other key operational activities. [removed: |]

[removed: | • |] [added: -] Controlling our selling, general and administrative (SG&A) expense infrastructure to match production levels. [removed: |]

[removed: | • |] [added: -] Ensuring that our financial services business provides high quality mortgage and title services to homebuyers efficiently and effectively. [removed: |]

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

We believe our operating strategy, which has produced positive results in recent years, will allow us to [added: successfully operate through changing economic conditions to] maintain and improve our financial and competitive [removed: position and balance sheet strength.][added: position.]

Key financial results as of and for our fiscal year ended September 30, [removed: 2019,] [added: 2020,] as compared to fiscal [removed: 2018 (or from the acquisition date of October 5, 2017 through September 30, 2018 for Forestar’s results),] [added: 2019,] were as follows:

[removed: | • |] [added: -] Homebuilding revenues increased [removed: 9%] [added: 15%] to [removed: $17.0] [added: $19.6] billion compared to [removed: $15.6] [added: $17.0] billion. [removed: |]

[removed: | • |] [added: -] Homes closed increased [removed: 10%] [added: 15%] to [removed: 56,975] [added: 65,388] homes, and the average closing price of those homes was [removed: $297,100. |][added: $299,100.]

[removed: | • |] [added: -] Net sales orders increased [removed: 7%] [added: 39%] to [removed: 56,565] [added: 78,458] homes, and the value of net sales orders increased [removed: 7%] [added: 40%] to [removed: $16.8] [added: $23.6] billion. [removed: |]

[removed: | • |] [added: -] Sales order backlog increased [removed: 2%] [added: 96%] to [removed: 13,613] [added: 26,683] homes, and the value of sales order backlog increased [removed: 3%] [added: 98%] to [removed: $4.1] [added: $8.2] billion. [removed: |]

[removed: | • |] [added: -] Home sales gross margin was [removed: 20.2%] [added: 21.8%] compared to [removed: 21.3%. |][added: 20.2%.]

[removed: | • |] [added: -] Homebuilding SG&A expense was [removed: 8.7%] [added: 8.2%] of homebuilding revenues compared to [removed: 8.6%. |][added: 8.7%.]

[removed: | • |] [added: -] Homebuilding pre-tax income was [removed: $1.9] [added: $2.7] billion compared to [removed: $2.0] [added: $1.9] billion. [removed: |]

[removed: | • |] [added: -] Homebuilding pre-tax income was [removed: 11.2%] [added: 13.6%] of homebuilding revenues compared to [removed: 12.5%. |][added: 11.2%.]

[removed: | • |] [added: -] Homebuilding return on inventory was [removed: 18.1%] [added: 24.6%] compared to [removed: 20.2%. |][added: 18.1%.]

[removed: | • | Net cash] [added: - Cash] provided by homebuilding operations was [removed: $1.4] [added: $1.9] billion compared to [removed: $1.0] [added: $1.4] billion. [removed: |]

[removed: | • |] [added: -] Homebuilding cash and cash equivalents totaled [removed: $1.0] [added: $2.6] billion compared to [removed: $1.1] [added: $1.0] billion. [removed: |]

[removed: | • |] [added: -] Homebuilding inventories totaled [removed: $10.3] [added: $11.0] billion compared to [removed: $9.9] [added: $10.3] billion. [removed: |]

[removed: | • |] [added: -] Homes in inventory totaled [removed: 27,700] [added: 38,000] compared to [removed: 27,900. |][added: 27,700.]

Fiscal 2020 Operating Results

Net income was $2.4 billion in fiscal 2020 compared to $1.6 billion in the prior year.

The current year results include a tax benefit of $93.4 million related to the retroactive reinstatement of the federal energy efficient homes tax credit.

Our relationship with Forestar and expanded relationships with other land developers across the country have allowed us to increase the controlled portion of our finished lot pipeline.

COVID-19

During the latter part of March 2020, the impacts of C-19 and the related widespread reductions in economic activity across the United States began to adversely affect our business.

However, residential construction and financial services were designated as essential businesses in almost all of our markets, which allowed us to continue to operate during that time.

We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

During April 2020 when restrictive stay-at-home orders were in place for many markets across the United States, we experienced increases in sales cancellations and decreases in sales orders, and net sales orders for April were 1% lower than the same month in the prior year.

However, as economic activity began to resume and restrictive orders began to be lifted, our weekly sales pace increased significantly, and our cancellation rate returned to normal levels.

For the third and fourth quarters of fiscal 2020, our net sales orders increased by 38% and 81%, respectively, compared to the prior year quarters.

We believe the increase in demand in the second half of the year was fueled by increased buyer urgency due to lower interest rates on mortgage loans, the limited supply of homes at affordable price points across most of our markets and to some extent the lower levels of home sales from mid-March through early April, which caused some pent-up demand.

We were and remain well positioned for increased demand with our affordable product offerings, lot supply and housing inventory.

However, even with the resurgence of demand in our third and fourth quarters, we remain cautious as to the ongoing impact of C-19 on our operations and on the overall economy.

There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers.

The extent to which this impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through changing economic conditions.

We have made operational adjustments as a result of C-19; however, our strategy remains consistent and includes the following initiatives:

- Forestar’s revenues increased 118% to $931.8 million compared to $428.3 million.

- Forestar’s lots sold increased 151% to 10,373 compared to 4,132.

Lots sold to D.R. Horton totaled 10,164 compared to 3,728.

- Forestar’s owned and controlled lots totaled 60,500 compared to 38,300.

- Forestar’s debt to total capital was 42.4% compared to 36.3%.

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| Midwest | | | | | | 5,010 | | | | | | 3,224 | | | | | | 55 | | % | | | | 1,794.8 | | | | | | 1,127.8 | | | | | | 59 | | % | | | | 358,200 | | | | | | 349,800 | | | | | | 2 | | % |

| Southeast | | | | | | 25,216 | | | | | | 18,609 | | | | | | 36 | | % | | | | 6,995.1 | | | | | | 5,011.2 | | | | | | 40 | | % | | | | 277,400 | | | | | | 269,300 | | | | | | 3 | | % |

| Southwest | | | | | | 4,180 | | | | | | 2,797 | | | | | | 49 | | % | | | | 1,219.0 | | | | | | 750.6 | | | | | | 62 | | % | | | | 291,600 | | | | | | 268,400 | | | | | | 9 | | % |

| West | | | | | | 10,142 | | | | | | 7,716 | | | | | | 31 | | % | | | | 4,416.8 | | | | | | 3,539.2 | | | | | | 25 | | % | | | | 435,500 | | | | | | 458,700 | | | | | | (5) | | % |

| | | | | | | 78,458 | | | | | | 56,565 | | | | | | 39 | | % | | | | $ | 23,606.3 | | | | | $ | 16,843.4 | | | | | 40 | | % | | | | $ | 300,900 | | | | | $ | 297,800 | | | | | 1 | | % |

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| | | | | | | 2020 | | | | | | 2019 | | | | | | 2020 | | | | | | 2019 | | | | | | 2020 | | | | | | 2019 | | |

| | | | | | | 19,166 | | | | | | 15,288 | | | | | | $ | 5,528.9 | | | | | $ | 4,335.1 | | | | | 20 | | % | | | | 21 | | % |

The markets contributing most to the increases in sales volumes in our regions were as follows: the Carolina markets (particularly Myrtle Beach and Charlotte) in the East; the Denver, Minneapolis and Indiana markets in the Midwest; the Florida markets (particularly Tampa) in the Southeast; the Houston and Dallas markets in the South Central; the Phoenix market in the Southwest; and the California and Nevada markets in the West.

The increase in our sales orders reflects the increase in demand for our homes in the second half of the year fueled by increased buyer urgency due to lower interest rates on mortgage loans, the limited supply of homes at affordable price points across most of our markets and to some extent the lower levels of home sales from mid-March through early April, which caused some pent-up demand.

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| East | | | | | | 3,583 | | | | | | 1,916 | | | | | | 87 | | % | | | | $ | 1,137.4 | | | | | $ | 576.1 | | | | | 97 | | % | | | | $ | 317,400 | | | | | $ | 300,700 | | | | | 6 | | % |

| Midwest | | | | | | 2,016 | | | | | | 1,063 | | | | | | 90 | | % | | | | 731.5 | | | | | | 364.7 | | | | | | 101 | | % | | | | 362,800 | | | | | | 343,100 | | | | | | 6 | | % |

Sales prices for both new and resale homes have increased across most of our markets over the past several years, which has generally reduced housing affordability.

During fiscal 2018, interest rates on mortgage loans increased, which further impacted affordability.

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.

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, affordable product offerings, a balanced supply of finished lots, land and homes, a strong balance sheet and liquidity position and experienced personnel across our operating markets.

Our pre-tax operating margin was 12.1% in fiscal 2019 compared to 12.8% in fiscal 2018.

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

We believe that housing demand in our individual operating markets is tied closely to each market’s economy.

Therefore, we expect that housing market conditions will vary across our markets.

If the U.S. economy continues to grow, we expect to see 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, increases in mortgage interest rates or tightening of mortgage lending standards.

This strategy includes the following initiatives:

| | |

| --- | --- |

| • | 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. |

| | | | |

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

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

| 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 | % |

| 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 | |

| | | 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.

We believe our business is well positioned to continue to generate increased sales volume; however, our future sales volumes will depend on new home demand in each of our operating markets and our ability to successfully implement our operating strategies.

| 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 | )% |

| Southwest | | 815 | | 928 | | (12 | )% | | 241.6 | | | | 251.7 | | | | (4 | )% | | 296,400 | | | | 271,200 | | | | 9 | % |

| West | | 1,376 | | 1,447 | | (5 | )% | | 654.2 | | | | 725.3 | | | | (10 | )% | | 475,400 | | | | 501,200 | | | | (5 | )% |

| | | 13,613 | | 13,371 | | 2 | % | | $ | 4,140.1 | | | $ | 4,028.9 | | | 3 | % | | $ | 304,100 | | | $ | 301,300 | | | 1 | % |

| East | | 7,928 | | 6,697 | | 18 | % | | $ | 2,285.0 | | | $ | 1,893.0 | | | 21 | % | | $ | 288,200 | | | $ | 282,700 | | | 2 | % |

| Midwest | | 3,193 | | 2,186 | | 46 | % | | 1,113.8 | | | | 857.5 | | | | 30 | % | | 348,800 | | | | 392,300 | | | | (11 | )% |

| Southwest | | 2,910 | | 3,094 | | (6 | )% | | 760.6 | | | | 725.4 | | | | 5 | % | | 261,400 | | | | 234,500 | | | | 11 | % |

| West | | 7,787 | | 7,724 | | 1 | % | | 3,610.3 | | | | 3,692.4 | | | | (2 | )% | | 463,600 | | | | 478,000 | | | | (3 | )% |

We manage interest rate risk through the use of forward sales of [removed: mortgage-backed securities (MBS),] [added: MBS,] which are referred to as “hedging instruments” in the following discussion.

The net fair value change, which for the years ended September 30, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] was not significant, is recognized in current earnings.

At September 30, [removed: 2019,] [added: 2020,] hedging instruments used to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted IRLCs totaled a notional amount of [removed: $1.3] [added: $2.8] billion.

Uncommitted IRLCs totaled a notional amount of approximately [removed: $702.7 million] [added: $1.7 billion] and uncommitted mortgage loans held for sale totaled a notional amount of approximately [removed: $663.8 million] [added: $1.2 billion] at September 30, [removed: 2019.][added: 2020.]

[removed: From time to time, we] [added: We occasionally] 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, [added: 2020 and] 2019, we had MBS totaling [added: $1.1 billion and] $111.4 [removed: million] [added: million, respectively,] that did not yet have IRLCs or closed loans created or assigned and recorded a liability of [added: $5.3 million and] $0.5 million for the fair value of such MBS position.

The following table sets forth principal cash flows by scheduled maturity, effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, [removed: 2019.][added: 2020.]

The interest rate for our variable rate debt represents the weighted average interest rate in effect at September 30, [removed: 2019.][added: 2020.]

| | | [added: | | | |] Fiscal Year Ending September 30, | | | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | | | | | |] Fair Value at September 30, [removed: 2019] [added: 2020] | | |

| | | [removed: 2020] | | | | 2021 | | | | [added: | |] 2022 | | | | [added: | |] 2023 | | | | [added: | |] 2024 | | | | [added: | | 2025 | | | | | |] Thereafter | | | | [added: | |] Total | | | | | | | [added: | |]

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

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

| Average interest rate | | [removed: 3.8] | | [removed: %] | | [removed: 2.8] [added: 2.9] | | % | | [added: | |] 4.5 | | % | | [added: | |] 5.5 | | % | | [removed: 8.6] | | [added: 8.5 | |] % | | [removed: —] | | [added: 2.7 | |] % | | [removed: 4.9] | | [added: 3.8 | |] % | | | | [added: 4.5] | [added: | % | | | | | | |]

| Variable rate | | [added: | | | |] $ | [removed: 888.9] [added: 1,132.6] | | | [added: | |] $ | — | | | [added: | |] $ | — | | | [added: | |] $ | — | | | [added: | |] $ | — | | | [added: | |] $ | — | | | [added: | |] $ | [removed: 888.9] [added: 1,132.6] | | | [added: | |] $ | [removed: 888.9] [added: 1,132.6] | |

| Average interest rate | | [removed: 3.7] | | [added: | | 2.4 | |] % | | [added: | |] — | | % | | [added: | |] — | | % | | [added: | |] — | | % | | [added: | |] — | | % | | [added: | |] — | | % | | [removed: 3.7] | | [added: 2.4 | |] % | | | | | [added: | |]

We have audited the accompanying consolidated balance [removed: sheet] [added: sheets] of D.R. Horton, Inc. and subsidiaries (the Company) as of September 30, [removed: 2019,] [added: 2020] and [added: 2019,] the related consolidated statements of operations, total equity, and cash flows for the [removed: year] [added: years] 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, [added: 2020 and] 2019, and the results of its operations and its cash flows for the [removed: year] [added: years] 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, [removed: 2019,] [added: 2020] 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 [removed: 25, 2019] [added: 19, 2020] expressed an unqualified opinion thereon.

Our responsibility is to express an opinion on the Company’s [added: consolidated] financial statements based on our audit.

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

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

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

| Estimation of reserves for construction defect matters | | [added: | | | |]

| *Description of the Matter* | [added: | |] At September 30, [removed: 2019,] [added: 2020,] the Company’s reserve for legal claims related to construction defect matters was [removed: $432.8] [added: $472.4] million. As explained in Note [removed: K] [added: L] 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. | [added: | |]

| *How We Addressed the Matter in Our Audit* | [added: | |] 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. [removed: Finally, we reconciled historical] [added: We also tested completeness and accuracy of underlying claims] data [removed: included] [added: used] in [removed: the model] [added: management’s estimation calculations] and performed recalculations to evaluate the [removed: completeness and] accuracy of the [removed: underlying data] [added: model] used by management to determine the estimate. | [added: | |]

We have audited D.R Horton, Inc. and subsidiaries’ internal control over financial reporting as of September 30, [removed: 2019,] [added: 2020,] based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, D.R. Horton, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, [removed: 2019,] [added: 2020,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance [removed: sheet] [added: sheets] of the Company as of September 30, [added: 2020 and] 2019, the related consolidated statements of operations, total equity, and cash flows for the [removed: year] [added: years] then ended, and the related notes and our report dated November [removed: 25, 2019] [added: 19, 2020] expressed an unqualified opinion thereon.

We have audited the consolidated [removed: balance sheet] [added: statements] of [added: operations, total equity, and cash flows of] D.R. Horton, Inc. and its subsidiaries (the “Company”) [removed: as of September 30, 2018, and the related consolidated statements of operations, total equity, and cash flows] for [removed: each of] the [removed: two years in the period] [added: year] ended September 30, 2018, including 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 [removed: financial position of the Company as of September 30, 2018, and the] results of [removed: its] operations and [removed: its] cash flows [removed: for each] of the [removed: two years in] [added: Company for] the [removed: period] [added: year] ended September 30, 2018 in conformity with accounting principles generally accepted in the United States of America.

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

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

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

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the [removed: consolidated] financial statements.

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

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| Fixed rate | | | | | | $ | 466.5 | | | | | $ | 350.3 | | | | | $ | 700.4 | | | | | $ | 352.7 | | | | | $ | 500.4 | | | | | $ | 800.8 | | | | | $ | 3,171.1 | | | | | $ | 3,356.6 | |

| | | | | | |

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

| | | | | | |

November 19, 2020

November 19, 2020

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

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

| | |

| --- | --- |

November 25, 2019

We construct and sell homes through our operating divisions in [removed: 90] [added: 88] markets across 29 states, primarily under the names of D.R. Horton, *America’s Builder*, Emerald Homes, Express Homes and Freedom Homes.

Our homes range in size from 1,000 to more than 4,000 square feet and in price from [removed: $100,000] [added: $150,000] to more than $1,000,000.

For the year ended September 30, [removed: 2019,] [added: 2020,] we closed [removed: 56,975] [added: 65,388] homes with an average closing price of [removed: $297,100.][added: $299,100.]

Our homebuilding operations are our core business, generating 97% of our consolidated revenues of [added: $20.3 billion,] $17.6 billion and $16.1 billion in fiscal [added: 2020,] 2019 and 2018, [removed: respectively, and 98% of our consolidated revenues of $14.1 billion in fiscal 2017.][added: respectively.]

Approximately [removed: 90%] [added: 91%] of our home sales revenue in fiscal [removed: 2019] [added: 2020] was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

[added: During fiscal 2018, we acquired 75% of the outstanding shares of] Forestar [removed: is] [added: Group Inc. (Forestar),] a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar is a component of our homebuilding strategy to enhance operational [added: and capital] efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase [removed: contracts to enhance operational efficiency and returns.][added: contracts.]

We owned approximately [removed: 66%] [added: 65%] of Forestar’s outstanding common stock at September 30, [removed: 2019.][added: 2020.]

DHI Mortgage, our 100% owned subsidiary, provides mortgage financing services primarily to our homebuyers and [removed: generally] sells [added: substantially all of] the mortgages it originates and the [added: majority of the] related servicing rights to third-party purchasers.

Our [added: 100% owned] subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to our homebuyers.

These subsidiaries conduct insurance-related operations, construct and own income-producing [added: multi-family] rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets.

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

Our homebuilding business operates in [removed: 90] [added: 88] markets across 29 states, which provides us with geographic diversification in our homebuilding inventory investments and our sources of revenues and earnings.

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

| | | [added: | | | |] East Region | | | | [removed: Southeast] [added: | | | | | | | | Midwest] Region | [added: | |]

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

| | | [added: | | | |] Northern Delaware | | | | [removed: Huntsville] | [added: | | | | | | | Fort Collins | | |]

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

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

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

| North Carolina | | [added: | | | |] Asheville | | | | [removed: Jacksonville] | [added: | Ohio | | | | | | Cincinnati | | |]

| | | [added: | | | |] Greensboro/Winston-Salem | | | | [removed: Melbourne/Vero Beach] | [added: | | | | | | | | | |]

| [removed: South Carolina] | | [removed: Charleston] | | | | Pensacola/Panama City | [added: | | | | | | | | | | | Sacramento | | |]

| | | [removed: Columbia] | | | | Port St. Lucie | [added: | | | | | | | | | | | San Bernardino County | | |]

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

| | | [removed: Myrtle Beach] | | | | West Palm Beach | [added: | | | | | Nevada | | | | | | Las Vegas | | |]

| [removed: Virginia] [added: Georgia] | | [removed: Northern Virginia] | | [removed: Georgia] | | Atlanta | [added: | | | | | | | | | | | Reno | | |]

| | | [added: | | | |] Southern Virginia | | | | [removed: Augusta] | [added: | | | | | | | Midland/Odessa | | |]

| [added: Mississippi] | | | | [removed: Mississippi] | | Gulf Coast | [added: | | | | | | | | | | | Portland/Salem | | |]

| [added: Delaware | | | | | | Central Delaware | | | | | |] Colorado | | [removed: Denver] | | | | [removed: Knoxville] [added: Denver] | [added: | |]

| [added: Georgia | | | | | | Savannah | | | | | |] Illinois | | [removed: Chicago] | | | | [removed: Nashville] [added: Chicago] | [added: | |]

| [added: Maryland | | | | | | Baltimore | | | | | |] Indiana | | [removed: Fort Wayne] | | | | [added: Fort Wayne] | [added: | |]

| | | [removed: Indianapolis] | | | | [added: Gainesville | | | | | | | | | | | |] West Region | [added: | |]

| [added: | | | | | | Southern New Jersey | | | | | |] Minnesota | | [removed: Minneapolis/St. Paul] | | | | [removed: Bay Area] [added: Minneapolis/St. Paul] | [added: | |]

| | | [removed: Columbus] | | | | [added: Miami/Fort Lauderdale | | | | | | | | | | | |] Los Angeles County | [added: | |]

| | | | | | | [added: Orlando | | | | | | | | | | | |] Riverside County | [added: | |]

| | | [added: | | | | Raleigh/Durham | | | | | | | | | | | |] South Central Region | | | [removed: | Sacramento |]

| [added: | | | | | | Wilmington | | | | | |] Louisiana | | [removed: Baton Rouge] | | | | [removed: San Bernardino County] [added: Baton Rouge] | [added: | |]

| | | [removed: Lafayette] | | | | [added: Tampa/Sarasota | | | | | | | | | | | |] San Diego County | [added: | |]

| [added: | | | | | | Philadelphia | | | | | |] Oklahoma | | [removed: Oklahoma City] | | | | [removed: Ventura County] [added: Oklahoma City] | [added: | |]

| | | [removed: Bryan/College Station] | | | | [removed: Kauai] [added: Columbia] | [added: | | | | | | | | | | | Bryan/College Station | | |]

At September 30, 2020, we owned 65% of Forestar’s outstanding common stock.

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

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

| New Jersey | | | | | | Northern New Jersey | | | | | | Iowa | | | | | | Des Moines | | |

| | | | | | | Charlotte | | | | | | | | | | | | Columbus | | |

| Pennsylvania | | | | | | Central Pennsylvania | | | | | | | | | | | | Lake Charles/Lafayette | | |

| South Carolina | | | | | | Charleston | | | | | | Texas | | | | | | Austin | | |

| | | | | | | Myrtle Beach | | | | | | | | | | | | Houston | | |

| | | | | | | Southeast Region | | | | | | | | | | | | San Antonio | | |

| | | | | | | Jacksonville | | | | | | California | | | | | | Bakersfield | | |

| | | | | | | Lakeland | | | | | | | | | | | | Bay Area | | |

| | | | | | | Melbourne/Vero Beach | | | | | | | | | | | | Fresno | | |

| | | | | | | Ocala | | | | | | | | | | | | Modesto/Merced | | |

| | | | | | | Volusia County | | | | | | Hawaii | | | | | | Oahu | | |

| | | | | | | Memphis | | | | | | | | | | | | Spokane | | |

| | | | | | | Nashville | | | | | | | | | | | | Vancouver | | |

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

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Single-Family Rental Properties

During fiscal 2020, several of our homebuilding divisions began constructing and leasing homes as single-family rental properties.

After these rental properties are constructed and achieve a stabilized level of leased occupancy, the properties in each community are expected to be marketed in bulk for sale.

At September 30, 2020, our homebuilding fixed assets included $87.2 million of assets related to our single-family rental platform representing approximately 740 single-family rental homes and finished lots, including approximately 440 completed homes.

There were no bulk sales of single-family rental properties in fiscal 2020.

These six projects represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units.

At September 30, 2020 and 2019, our consolidated balance sheets included $246.2 million and $204.0 million, respectively, of assets related to DHI Communities.

Human Capital Resources

As of September 30, 2020, we employ 9,716 people, of whom 6,818 work in our homebuilding operations, 2,163 in our financial services segment, 463 at our corporate office, 143 for our Forestar subsidiary and 129 in our other businesses.

Of our homebuilding employees, 2,666 are involved in construction, 1,996 are sales and marketing personnel and 2,156 are office personnel.

We believe the people who work for our company are our most important resources and are critical to our continued success.

We offer our employees a broad range of company-paid benefits, and we believe our compensation package and benefits are competitive with others in our industry.

Additional information about our employee benefit plans is included in Note K.

Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions.

We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees.

Our focus on retention is evident in the length of service of our executive, regional and divisional management teams.

The average tenure of our executive team and homebuilding region presidents is 27 years and the average tenure of our homebuilding division presidents and city managers is greater than 10 years.

We are committed to hiring, developing and supporting a diverse and inclusive workplace.

Our management teams are expected to exhibit and promote honest, ethical and respectful conduct in the workplace.

All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.

During fiscal 2020, despite the COVID-19 pandemic (C-19), we increased the number of employees in all of our operating segments and kept all of our employee compensation and benefit plans intact.

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

| | | | | | | |

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

| Maryland | | Baltimore | | | | Montgomery |

| | | Southern New Jersey | | | | Gainesville |

| | | Charlotte | | | | Lakeland |

| | | Raleigh/Durham | | | | Miami/Fort Lauderdale |

| | | Wilmington | | | | Ocala |

| Pennsylvania | | Philadelphia | | | | Orlando |

| | | Hilton Head | | | | Volusia County |

| | | Midwest Region | | Tennessee | | Chattanooga |

| | | Fort Collins | | | | Memphis |

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

| Ohio | | Cincinnati | | | | Fresno |

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

| | | Dallas | | | | Maui |

| | | Houston | | Nevada | | Las Vegas |

| Arizona | | Phoenix | | | | Vancouver |

| | |

| --- | --- |

| | | | | | | | |

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

We currently assume little or no underwriting risk associated with these title policies.

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.

Employees

At September 30, 2019, we employed 8,916 persons, of whom 1,908 were sales and marketing personnel, 2,532 were involved in construction, 2,552 were office personnel and 1,924 worked in mortgage and title operations.

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.

We [removed: 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 [removed: another] [added: a] development site in our Southeast region relating to a violation notice the ACOE issued in April 2017.

With respect to administrative or judicial proceedings involving the environment, we have determined that in future filings we will disclose any such proceeding if we reasonably believe such proceeding will result in monetary sanctions, exclusive of interest and costs, at or in excess of $1 million.

We believe that such threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition.

In October 2018, we reached an agreement in principle with the 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.

| | |

| --- | --- |

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

| (Mark One) | | [added: | | | |]

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

For the Fiscal Year [removed: Ended September] [added: Ended September] 30, [removed: 2019][added: 2020]

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

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

| Delaware | | [added: | | | |] 75-2386963 | [added: | |]

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

[removed: Arlington, Texas 76011][added: Arlington, Texas 76011]

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

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

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

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

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

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

As of March 31, [removed: 2019,] [added: 2020,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $14.4] [added: $11.5] billion based on the closing price as reported on the New York Stock Exchange.

As of November [removed: 13, 2019,] [added: 12, 2020,] there were [removed: 368,493,204] [added: 364,390,995] shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive Proxy Statement for the [removed: 2020] [added: 2021] Annual Meeting of Stockholders are incorporated herein by reference (to the extent indicated) in Part III.

[removed: 2019 ANNUAL] [added: 2020 ANNUAL] REPORT ON FORM 10-K

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| [ITEM [removed: 1.](#s6B491375322D4F924F9B79B235D751AE)] [added: 1.](#ibded95f24f424326a39dded243103ee0_16)] | [removed: [Business](#s6B491375322D4F924F9B79B235D751AE)] | [removed: [1](#s6B491375322D4F924F9B79B235D751AE)] | [added: [Business](#ibded95f24f424326a39dded243103ee0_16) | | | [1](#ibded95f24f424326a39dded243103ee0_16) | | |]

| [ITEM [removed: 1A.](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] [added: 1A.](#ibded95f24f424326a39dded243103ee0_19)] | [added: | |] [Risk [removed: Factors](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] [added: Factors](#ibded95f24f424326a39dded243103ee0_19)] | [removed: [12](#s3ED63B03CCFDDC9A2DA579B20CA668B6)] | [added: | [13](#ibded95f24f424326a39dded243103ee0_19) | | |]

| [ITEM [removed: 1B.](#s5CE19CD92EED7AC1766479B23FDA18B2)] [added: 1B.](#ibded95f24f424326a39dded243103ee0_22)] | [added: | |] [Unresolved Staff [removed: Comments](#s5CE19CD92EED7AC1766479B23FDA18B2)] [added: Comments](#ibded95f24f424326a39dded243103ee0_22)] | [removed: [23](#s5CE19CD92EED7AC1766479B23FDA18B2)] | [added: | [24](#ibded95f24f424326a39dded243103ee0_22) | | |]

| [ITEM [removed: 2.](#sF3A999FDB3594B0CB89679B23FFBA899)] [added: 2.](#ibded95f24f424326a39dded243103ee0_25)] | [removed: [Properties](#sF3A999FDB3594B0CB89679B23FFBA899)] | [removed: [23](#sF3A999FDB3594B0CB89679B23FFBA899)] | [added: [Properties](#ibded95f24f424326a39dded243103ee0_25) | | | [24](#ibded95f24f424326a39dded243103ee0_25) | | |]

| [ITEM [removed: 3.](#sA0D32E77F291B0F5F34479B2402ED5A7)] [added: 3.](#ibded95f24f424326a39dded243103ee0_28)] | [added: | |] [Legal [removed: Proceedings](#sA0D32E77F291B0F5F34479B2402ED5A7)] [added: Proceedings](#ibded95f24f424326a39dded243103ee0_28)] | [removed: [23](#sA0D32E77F291B0F5F34479B2402ED5A7)] | [added: | [24](#ibded95f24f424326a39dded243103ee0_28) | | |]

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| [ITEM [removed: 5.](#s349A46B944AB99C8037F79B225BB81FF)] [added: 5.](#ibded95f24f424326a39dded243103ee0_37)] | [added: | |] [Market for Registrant’s Common Equity, Related Stockholder [removed: Matters and] [added: Matters](#ibded95f24f424326a39dded243103ee0_37) [and] Issuer Purchases of Equity [removed: Securities](#s349A46B944AB99C8037F79B225BB81FF)] [added: Securities](#ibded95f24f424326a39dded243103ee0_37)] | [removed: [24](#s349A46B944AB99C8037F79B225BB81FF)] | [added: | [25](#ibded95f24f424326a39dded243103ee0_37) | | |]

| [ITEM [removed: 6.](#s46017576A52A2973980B79B240D34B3E)] [added: 6.](#ibded95f24f424326a39dded243103ee0_40)] | [added: | |] [Selected Financial [removed: Data](#s46017576A52A2973980B79B240D34B3E)] [added: Data](#ibded95f24f424326a39dded243103ee0_40)] | [removed: [26](#s46017576A52A2973980B79B240D34B3E)] | [added: | [27](#ibded95f24f424326a39dded243103ee0_40) | | |]

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| [ITEM [removed: 7A.](#s885C11DAD21E4ECE599D79B2357A93CD)] [added: 7A.](#ibded95f24f424326a39dded243103ee0_85)] | [added: | |] [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s885C11DAD21E4ECE599D79B2357A93CD)] [added: Risk](#ibded95f24f424326a39dded243103ee0_85)] | [removed: [55](#s885C11DAD21E4ECE599D79B2357A93CD)] | [added: | [57](#ibded95f24f424326a39dded243103ee0_85) | | |]

| [ITEM [removed: 8.](#s24FBC31D02AC4453C4BA79B244682630)] [added: 8.](#ibded95f24f424326a39dded243103ee0_94)] | [added: | |] [Financial Statements and Supplementary [removed: Data](#s24FBC31D02AC4453C4BA79B244682630)] [added: Data](#ibded95f24f424326a39dded243103ee0_94)] | [removed: [60](#s24FBC31D02AC4453C4BA79B244682630)] | [added: | [62](#ibded95f24f424326a39dded243103ee0_94) | | |]

| [ITEM [removed: 9.](#s56538ED2E0B5F973991A79B24AEC199D)] [added: 9.](#ibded95f24f424326a39dded243103ee0_181)] | [added: | |] [Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s56538ED2E0B5F973991A79B24AEC199D)] [added: Disclosure](#ibded95f24f424326a39dded243103ee0_181)] | [removed: [113](#s56538ED2E0B5F973991A79B24AEC199D)] | [added: | [105](#ibded95f24f424326a39dded243103ee0_181) | | |]

| [ITEM [removed: 9A.](#sD726C241705E5FD8A0F379B24B0C20F0)] [added: 9A.](#ibded95f24f424326a39dded243103ee0_184)] | [added: | |] [Controls and [removed: Procedures](#sD726C241705E5FD8A0F379B24B0C20F0)] [added: Procedures](#ibded95f24f424326a39dded243103ee0_184)] | [removed: [113](#sD726C241705E5FD8A0F379B24B0C20F0)] | [added: | [105](#ibded95f24f424326a39dded243103ee0_184) | | |]

| [ITEM [removed: 9B.](#s4849CC0D564A631A7F5479B24B605FAC)] [added: 9B.](#ibded95f24f424326a39dded243103ee0_190)] | [added: | |] [Other [removed: Information](#s4849CC0D564A631A7F5479B24B605FAC)] [added: Information](#ibded95f24f424326a39dded243103ee0_190)] | [removed: [113](#s4849CC0D564A631A7F5479B24B605FAC)] | [added: | [105](#ibded95f24f424326a39dded243103ee0_190) | | |]

| [removed: [PART III](#sCB5E50F8505D335A4BA579B24B92666F)] [added: [PART III](#ibded95f24f424326a39dded243103ee0_193)] | | | [added: | | | | | |]

| [ITEM [removed: 10.](#s6D4E7B9285D5936E652E79B24BB4E418)] [added: 10.](#ibded95f24f424326a39dded243103ee0_196)] | [added: | |] [Directors, Executive Officers and Corporate [removed: Governance](#s6D4E7B9285D5936E652E79B24BB4E418)] [added: Governance](#ibded95f24f424326a39dded243103ee0_196)] | [removed: [114](#s6D4E7B9285D5936E652E79B24BB4E418)] | [added: | [106](#ibded95f24f424326a39dded243103ee0_196) | | |]

| [ITEM [removed: 11.](#s51D09C11D879891FF9AB79B24BE64C85)] [added: 11.](#ibded95f24f424326a39dded243103ee0_199)] | [added: | |] [Executive [removed: Compensation](#s51D09C11D879891FF9AB79B24BE64C85)] [added: Compensation](#ibded95f24f424326a39dded243103ee0_199)] | [removed: [114](#s51D09C11D879891FF9AB79B24BE64C85)] | [added: | [106](#ibded95f24f424326a39dded243103ee0_199) | | |]

| [ITEM [removed: 12.](#s06CB02CD6DF8C474036479B224E64DA7)] [added: 12.](#ibded95f24f424326a39dded243103ee0_202)] | [added: | |] [Security Ownership of Certain Beneficial Owners and [removed: Management and] [added: Management](#ibded95f24f424326a39dded243103ee0_202) [and] Related Stockholder [removed: Matters](#s06CB02CD6DF8C474036479B224E64DA7)] [added: Matters](#ibded95f24f424326a39dded243103ee0_202)] | [removed: [114](#s06CB02CD6DF8C474036479B224E64DA7)] | [added: | [106](#ibded95f24f424326a39dded243103ee0_202) | | |]

| [ITEM [removed: 13.](#sE9EEAA1FBF763A2C9B9979B24C3904DB)] [added: 13.](#ibded95f24f424326a39dded243103ee0_205)] | [added: | |] [Certain Relationships and Related Transactions, and Director [removed: Independence](#sE9EEAA1FBF763A2C9B9979B24C3904DB)] [added: Independence](#ibded95f24f424326a39dded243103ee0_205)] | [removed: [115](#sE9EEAA1FBF763A2C9B9979B24C3904DB)] | [added: | [107](#ibded95f24f424326a39dded243103ee0_205) | | |]

| [ITEM [removed: 14.](#s06420A4B816051DA4F2F79B24C5918E5)] [added: 14.](#ibded95f24f424326a39dded243103ee0_208)] | [added: | |] [Principal Accountant Fees and [removed: Services](#s06420A4B816051DA4F2F79B24C5918E5)] [added: Services](#ibded95f24f424326a39dded243103ee0_208)] | [removed: [115](#s06420A4B816051DA4F2F79B24C5918E5)] | [added: | [107](#ibded95f24f424326a39dded243103ee0_208) | | |]

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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| [PART I](#ibded95f24f424326a39dded243103ee0_13) | | | | | | | | |

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| [PART II](#ibded95f24f424326a39dded243103ee0_34) | | | | | | | | |

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| [PART IV](#ibded95f24f424326a39dded243103ee0_211) | | | | | | | | |

| [ITEM 16.](#ibded95f24f424326a39dded243103ee0_217) | | | [10-K Summary](#ibded95f24f424326a39dded243103ee0_217) | | | [113](#ibded95f24f424326a39dded243103ee0_217) | | |

| [SIGNATURES](#ibded95f24f424326a39dded243103ee0_220) | | | | | | [114](#ibded95f24f424326a39dded243103ee0_220) | | |

_______________________________________________________________________________________________________________

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___________________________________________________________________________________________________________________

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| [PART I](#s0FE489879A2CA76BB9B779B23F550B0C) | | |

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

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

| [ITEM 16.](#sA3FFE341131CF508ADB079B24CE57D47) | [10-K Summary](#sA3FFE341131CF508ADB079B24CE57D47) | [121](#sA3FFE341131CF508ADB079B24CE57D47) |

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

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We also own office buildings totaling approximately [removed: 1.0] [added: 1.1] million square feet, and we lease approximately [removed: 580,000] [added: 570,000] square feet of office space under leases expiring through [removed: December 2024.][added: February 2026.]

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Our common stock is listed on the New York Stock Exchange (NYSE) under the symbol “DHI.” As of November [removed: 13, 2019,] [added: 12, 2020,] the closing price of our common stock on the NYSE was [removed: $54.33,] [added: $71.42,] and there were approximately [removed: 319] [added: 302] holders of record.

In November [removed: 2019,] [added: 2020,] our Board of Directors approved a [added: quarterly] cash dividend of [removed: $0.175] [added: $0.20] per common share, payable on December [removed: 11, 2019,] [added: 14, 2020,] to stockholders of record on [removed: November 27, 2019.][added: December 4, 2020.]

All share repurchases were made in accordance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, as [removed: amended.][added: amended (Exchange Act).]

During fiscal years [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017,] [added: 2018,] we did not sell any equity securities that were not registered under the Securities Act of 1933, as [removed: amended.][added: amended (Securities Act).]

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: 2019,] [added: 2020,] 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: 2014] [added: 2015] and assumes that all dividends were reinvested.

[removed: ][added: ]

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

| | [removed: 2014] | | [added: 2015] | | [removed: 2015] | | | | 2016 | | | | [added: | |] 2017 | | | | [added: | |] 2018 | | | | [added: | |] 2019 | | | [added: | | | 2020 | | |]

This performance graph shall not be deemed to be incorporated by reference into our SEC filings and should not constitute soliciting material or otherwise be considered filed under the Securities Act [removed: of 1933, as amended,] or the [removed: Securities] Exchange [removed: Act of 1934, as amended.][added: Act.]

We may repurchase shares of our common stock from time to time pursuant to our $1.0 billion common stock repurchase authorization, which was approved by our Board of Directors effective July 30, 2019 and has no expiration date.

During fiscal 2020, we purchased 7.0 million shares of our common stock for $360.4 million, none of which were purchased in the three months ended September 30, 2020.

At September 30, 2020, our remaining stock repurchase authorization was $535.3 million.

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| D.R. Horton, Inc. | | | $ | 100.00 | | | | | $ | 103.97 | | | | | $ | 139.22 | | | | | $ | 148.68 | | | | | $ | 188.55 | | | | | $ | 273.89 | |

| S&P 500 Index | | | 100.00 | | | | | | 115.43 | | | | | | 136.91 | | | | | | 161.43 | | | | | | 168.30 | | | | | | 193.80 | | |

| S&P 1500 Homebuilding Index | | | 100.00 | | | | | | 99.41 | | | | | | 137.60 | | | | | | 130.15 | | | | | | 174.76 | | | | | | 232.77 | | |

We may repurchase shares of our common stock from time to time pursuant to our common stock repurchase authorization.

The following table sets forth information concerning our common stock repurchases during the three months ended September 30, 2019.

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

| 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 | |

______________

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| (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. |

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| 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 | | |

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

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | | | [removed: 2017] | | [added: 2017] | | [removed: 2016] | | | | [removed: 2015] [added: 2016] | | |

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

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

| Revenues [removed: (1)] | [added: | |] $ | [removed: 17,592.9] [added: 20,311.1] | | | [added: | |] $ | [removed: 16,068.0] [added: 17,592.9] | | | [added: | |] $ | [removed: 14,091.0] [added: 16,068.0] | | | [added: | |] $ | [removed: 12,157.4] [added: 14,091.0] | | | [added: | |] $ | [removed: 10,824.0] [added: 12,157.4] | |

| Cost of sales | [added: | | 15,373.2 | | | | | |] 13,720.9 | | | | [added: | |] 12,398.1 | | | | [removed: 11,042.8] | | [added: 11,042.8] | | [removed: 9,502.6] | | | | [removed: 8,535.7] [added: 9,502.6] | | |

| Selling, general and administrative expense | [added: | | 2,047.8 | | | | | |] 1,832.5 | | | | [added: | |] 1,676.8 | | | | [removed: 1,471.6] | | [added: 1,471.6] | | [removed: 1,320.3] | | | | [removed: 1,186.0] [added: 1,320.3] | | |

| Income before income taxes | [added: | | 2,983.0 | | | | | |] 2,125.3 | | | | [added: | |] 2,060.0 | | | | [removed: 1,602.1] | | [added: 1,602.1] | | [removed: 1,353.5] | | | | [removed: 1,123.4] [added: 1,353.5] | | |

| Income tax expense | [added: | | 602.5 | | | | | |] 506.7 | | | | [added: | |] 597.7 | | | | [removed: 563.7] | | [added: 563.7] | | [removed: 467.2] | | | | [removed: 372.7] [added: 467.2] | | |

| Net income attributable to D.R. Horton, Inc. | [added: | | 2,373.7 | | | | | |] 1,618.5 | | | | [added: | |] 1,460.3 | | | | [removed: 1,038.4] | | [added: 1,038.4] | | [removed: 886.3] | | | | [removed: 750.7] [added: 886.3] | | |

| Net income per common share attributable to D.R. Horton, Inc.: | | | | | | | | | | | | | | | | | | | | [added: | | | | | | | | | |]

| Basic | [added: | | 6.49 | | | | | |] 4.34 | | | | [added: | |] 3.88 | | | | [removed: 2.77] | | [added: 2.77] | | [removed: 2.39] | | | | [removed: 2.05] [added: 2.39] | | |

| Diluted | [added: | | 6.41 | | | | | |] 4.29 | | | | [added: | |] 3.81 | | | | [removed: 2.74] | | [added: 2.74] | | [removed: 2.36] | | | | [removed: 2.03] [added: 2.36] | | |

| Cash dividends declared per common share | [added: | | 0.70 | | | | | |] 0.60 | | | | [added: | |] 0.50 | | | | [removed: 0.40] | | [added: 0.40] | | [removed: 0.32] | | | | [removed: 0.25] [added: 0.32] | | |

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

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

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

| Cash and cash equivalents | [added: | |] $ | [removed: 1,494.3] [added: 3,018.5] | | | [added: | |] $ | [removed: 1,473.1] [added: 1,494.3] | | | [added: | |] $ | [removed: 1,007.8] [added: 1,473.1] | | | [added: | |] $ | [removed: 1,303.2] [added: 1,007.8] | | | [added: | |] $ | [removed: 1,383.8] [added: 1,303.2] | |

| Inventories | [added: | | 12,237.4 | | | | | |] 11,282.0 | | | | [added: | |] 10,395.0 | | | | [removed: 9,237.1] | | [added: 9,237.1] | | [removed: 8,340.9] | | | | [removed: 7,807.0] [added: 8,340.9] | | |

| Total assets | [added: | | 18,912.3 | | | | | |] 15,606.6 | | | | [added: | |] 14,114.6 | | | | [removed: 12,184.6] | | [added: 12,184.6] | | [removed: 11,558.9] | | | | [removed: 11,151.0] [added: 11,558.9] | | |

| Notes payable | [added: | | 4,283.3 | | | | | |] 3,399.4 | | | | [added: | |] 3,203.5 | | | | [removed: 2,871.6] | | [added: 2,871.6] | | [removed: 3,271.3] | | | | [removed: 3,811.5] [added: 3,271.3] | | |

| Total liabilities | [added: | | 6,790.8 | | | | | |] 5,311.5 | | | | [added: | |] 4,955.7 | | | | [removed: 4,437.0] | | [added: 4,437.0] | | [removed: 4,765.9] | | | | [removed: 5,255.6] [added: 4,765.9] | | |

| Stockholders’ equity | [added: | | 11,840.0 | | | | | |] 10,020.9 | | | | [added: | |] 8,984.4 | | | | [removed: 7,747.1] | | [added: 7,747.1] | | [removed: 6,792.5] | | | | [removed: 5,894.3] [added: 6,792.5] | | |

| Total equity | [added: | | 12,121.5 | | | | | |] 10,295.1 | | | | [added: | |] 9,158.9 | | | | [removed: 7,747.6] | | [added: 7,747.6] | | [removed: 6,793.0] | | | | [removed: 5,895.4] [added: 6,793.0] | | |

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| | | | 2020 | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | |

As described in Note A to the financial statements, we have changed the presentation of our consolidated balance sheets and statements of operations to present our homebuilding, Forestar, financial services and other operations on a combined basis.

The financial data in the tables below, including prior year amounts, reflect this presentation.

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

| | [added: | | 2020 | | | | | |] 2019 | | | | [added: | |] 2018 | | |

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

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

| Cash and cash equivalents [added: (1)] | [added: | |] $ | 1,494.3 | | | [added: | |] $ | [removed: 1,473.1] [added: 1,494.3] | | [added: | | | $ | — | | | | | $ | — | | | | | $ | 1,494.3 | |]

| Restricted cash [added: (1)] | [added: | |] 19.7 | | | | [removed: 32.9] | | [added: 19.7] | [added: | | | | | — | | | | | | — | | | | | | 19.7 | | |]

| Total cash, cash equivalents and restricted cash | [removed: 1,514.0] | | [added: 3,040.1] | | [removed: 1,506.0] | | | [added: | 1,514.0 | | |]

| Inventories: | | | | | | | | [added: | | | |]

| Construction in progress and finished homes | [removed: 5,245.0] | | [added: 5,984.1] | | [removed: 5,086.3] | | | [added: | 5,245.0 | | |]

| Residential land and lots — developed and under development | [removed: 5,939.4] | | [added: 6,171.8] | | [removed: 5,172.4] | | | [added: | 5,939.4 | | |]

| Land held for development | [removed: 77.8] | | [added: 53.2] | | [removed: 96.1] | | | [added: | 77.8 | | |]

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

| Total inventory | [removed: 11,282.0] | | [added: 12,237.4] | | [removed: 10,395.0] | | | [added: | 11,282.0 | | |]

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

| Deferred income taxes, net of valuation allowance of [removed: $18.7] [added: $7.5] million and [removed: $17.7] [added: $18.7] million at September 30, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively | [removed: 163.1] | | [added: 144.9] | | [removed: 194.0] | | | [added: | 163.1 | | |]

| Property and equipment, net | [removed: 462.2] | | [added: 683.7] | | [removed: 401.1] | | | [added: | 499.2 | | |]

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

| Total assets | [added: | |] $ | [removed: 15,606.6] [added: 18,912.3] | | | [added: | |] $ | [removed: 14,114.6] [added: 15,606.6] | |

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

| Accounts payable | [added: | |] $ | [removed: 634.0] [added: 900.5] | | | [added: | |] $ | [removed: 624.7] [added: 634.0] | |

| Accrued expenses and other liabilities | [removed: 1,278.1] | | [added: 1,607.0] | | [removed: 1,127.5] | | | [added: | 1,278.1 | | |]

| Notes payable | [removed: 3,399.4] | | [added: 4,283.3] | | [removed: 3,203.5] | | | [added: | 3,399.4 | | |]

| Total liabilities | [removed: 5,311.5] | | [added: 6,790.8] | | [removed: 4,955.7] | | | [added: | 5,311.5 | | |]

| Commitments and contingencies (Note [removed: K)] [added: L)] | | | | | | | | [added: | | | |]

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

| Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued | [added: | |] — | | | | [added: | |] — | | |

| Common stock, $.01 par value, 1,000,000,000 shares authorized, [removed: 392,172,821] [added: 394,741,349] shares issued and [removed: 368,431,454] [added: 363,999,982] shares outstanding at September 30, [removed: 2019] [added: 2020] and [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] | [added: | |] 3.9 | | | | [added: | |] 3.9 | | |

| Additional paid-in capital | [removed: 3,179.1] | | [added: 3,240.9] | | [removed: 3,085.0] | | | [added: | 3,179.1 | | |]

| Retained earnings | [removed: 7,640.1] | | [added: 9,757.8] | | [removed: 6,217.9] | | | [added: | 7,640.1 | | |]

| Treasury stock, [removed: 23,741,367] [added: 30,741,367] shares and [removed: 11,858,608] [added: 23,741,367] shares at September 30, [removed: 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively, at cost | [removed: (802.2] | | [removed: )] [added: (1,162.6)] | | [removed: (322.4] | | [removed: )] | [added: | (802.2) | | |]

| Stockholders’ equity | [removed: 10,020.9] | | [added: 11,840.0] | | [removed: 8,984.4] | | | [added: | 10,020.9 | | |]

| Noncontrolling interests | [removed: 274.2] | | [added: 281.5] | | [removed: 174.5] | | | [added: | 274.2 | | |]

| Total equity | [removed: 10,295.1] | | [added: 12,121.5] | | [removed: 9,158.9] | | | [added: | 10,295.1 | | |]

| Total liabilities and equity | [added: | |] $ | [removed: 15,606.6] [added: 18,912.3] | | | [added: | |] $ | [removed: 14,114.6] [added: 15,606.6] | |

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

| | [removed: 2019] | | [added: 2020] | | [removed: 2018] | | | | [removed: 2017] [added: 2019] | | | [added: | | | 2018 | | |]

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

| Revenues | [added: | |] $ | [removed: 17,592.9] [added: 20,311.1] | | | [added: | |] $ | [removed: 16,068.0] [added: 17,592.9] | | | [added: | |] $ | [removed: 14,091.0] [added: 16,068.0] | |

| Cost of sales | [removed: 13,720.9] | | [added: 15,373.2] | | [removed: 12,398.1] | | | | [removed: 11,042.8] [added: 13,720.9] | | | [added: | | | 12,398.1 | | |]

| Selling, general and administrative expense | [removed: 1,832.5] | | [added: 2,047.8] | | [removed: 1,676.8] | | | | [removed: 1,471.6] [added: 1,832.5] | | | [added: | | | 1,676.8 | | |]

| | | | 2020 | | | | | | 2019 | | |

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| Net income | | | — | | | | | | — | | | | | | 2,373.7 | | | | | | — | | | | | | 6.8 | | | | | | 2,380.5 | | |

| Change of ownership interest in Forestar | | | — | | | | | | (1.2) | | | | | | — | | | | | | — | | | | | | 1.2 | | | | | | — | | |

| Balances at September 30, 2020 (363,999,982 shares) | | | $ | 3.9 | | | | | $ | 3,240.9 | | | | | $ | 9,757.8 | | | | | $ | (1,162.6) | | | | | $ | 281.5 | | | | | $ | 12,121.5 | |

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Certain prior period amounts have been reclassified to conform to the current year presentation.

At the beginning of fiscal 2020, the Company reclassified its single-family rental properties from other assets to property and equipment in its homebuilding segment.

Reclassification of the prior period amount resulted in a $37.0 million decrease in other assets with a corresponding increase in property and equipment at September 30, 2019.

This reclassification had no effect on the Company’s consolidated financial position or results of operations.

As a result of the adoption of this standard on October 1, 2019, the Company recorded right of use assets of $39.0 million and lease liabilities of $40.3 million.

Lease right of use assets are included in other assets and lease liabilities are included in accrued expenses and other liabilities in the consolidated balance sheet.

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X.

The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements.

The Company adopted these amendments on March 31, 2020.

Accordingly, summarized financial information has been presented only for the issuers and guarantors of the Company's registered securities for the most recent fiscal year and as permitted, this information is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In October 2020, the FASB issued ASU 2020-09, “Debt (Topic 470) - Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762,” to reflect the SEC’s new disclosure rules on guaranteed debt securities offerings adopted by the Company in March 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The depreciable lives of single-family rental homes and multi-family rental buildings typically range from 25 to 30 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

| | | | 2020 | | | | | | 2019 | | |

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s unrecognized tax benefits totaled $8.9 million at September 30, 2020 and were insignificant at September 30, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

See Note N.

In December 2019, the FASB issued ASU 2019-12 related to simplifying the accounting for income taxes.

The guidance is effective for the Company beginning October 1, 2021, although early adoption is permitted.

The Company is currently evaluating the impact of this guidance, and it is not expected to have a material impact on its consolidated financial position, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform,” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (LIBOR) or by another reference rate expected to be discontinued.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

The Company will adopt this standard when LIBOR is discontinued and does not expect it to have a material impact on its consolidated financial statements or related disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

These six projects represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units.

During fiscal 2020 and 2019, DHI Communities sold two properties each year representing 540 and 820 multi-family rental units, respectively, for $128.5 million and $133.4 million, and recorded gains on sale totaling $59.4 million and $51.9 million.

D.R. HORTON, INC. AND SUBSIDIARIES

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| Investment in unconsolidated entities | 6.5 | | | | 11.0 | | |

| Other assets | 943.3 | | | | 701.9 | | |

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

| Balances at September 30, 2016 (372,923,187 shares) | $ | 3.8 | | | $ | 2,865.8 | | | $ | 4,057.2 | | | $ | (134.3 | ) | | $ | 0.5 | | | $ | 6,793.0 | |

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

| Tax benefit from employee stock awards | — | | | | 13.7 | | | | — | | | | — | | | | — | | | | 13.7 | | |

| Excess income tax benefit from employee stock awards | — | | | | — | | | | (14.3 | | ) |

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

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.

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.