filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | September 30, 2021 | ||||||||||
| (In millions) (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 2,442.1 | $ | 3,210.4 | |||||||
| Restricted cash | 22.5 | 26.8 | |||||||||
| Total cash, cash equivalents and restricted cash | 2,464.6 | 3,237.2 | |||||||||
| Inventories: | |||||||||||
| Construction in progress and finished homes | 8,742.9 | 7,739.2 | |||||||||
| Residential land and lots — developed and under development | 8,162.4 | 7,781.8 | |||||||||
| Land held for development | 131.4 | 110.9 | |||||||||
| Land held for sale | 24.8 | 25.4 | |||||||||
| Rental properties | 1,141.0 | 821.8 | |||||||||
| Total inventory | 18,202.5 | 16,479.1 | |||||||||
| Mortgage loans held for sale | 1,833.3 | 2,027.3 | |||||||||
| Deferred income taxes, net of valuation allowance of $4.1 million and $4.2 million at December 31, 2021 and September 30, 2021, respectively | 137.6 | 155.3 | |||||||||
| Property and equipment, net | 410.4 | 392.9 | |||||||||
| Other assets | 1,787.5 | 1,560.6 | |||||||||
| Goodwill | 163.5 | 163.5 | |||||||||
| Total assets | $ | 24,999.4 | $ | 24,015.9 | |||||||
| LIABILITIES | |||||||||||
| Accounts payable | $ | 1,150.7 | $ | 1,177.0 | |||||||
| Accrued expenses and other liabilities | 2,580.0 | 2,210.3 | |||||||||
| Notes payable | 5,255.3 | 5,412.4 | |||||||||
| Total liabilities | 8,986.0 | 8,799.7 | |||||||||
| Commitments and contingencies (Note K) | |||||||||||
| EQUITY | |||||||||||
| Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued | — | — | |||||||||
| Common stock, $.01 par value, 1,000,000,000 shares authorized, 398,162,095 shares issued and 354,277,601 shares outstanding at December 31, 2021 and 397,190,100 shares issued and 356,015,843 shares outstanding at September 30, 2021 | 4.0 | 4.0 | |||||||||
| Additional paid-in capital | 3,282.7 | 3,274.8 | |||||||||
| Retained earnings | 14,705.8 | 13,644.3 | |||||||||
| Treasury stock, 43,884,494 shares and 41,174,257 shares at December 31, 2021 and September 30, 2021, respectively, at cost | (2,314.8) | (2,036.6) | |||||||||
| Stockholders’ equity | 15,677.7 | 14,886.5 | |||||||||
| Noncontrolling interests | 335.7 | 329.7 | |||||||||
| Total equity | 16,013.4 | 15,216.2 | |||||||||
| Total liabilities and equity | $ | 24,999.4 | $ | 24,015.9 |
See accompanying notes to consolidated financial statements.
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| (In millions, except per share data) (Unaudited) | |||||||||||||||||||||||
| Revenues | $ | 7,053.4 | $ | 5,933.4 | |||||||||||||||||||
| Cost of sales | 4,905.7 | 4,332.5 | |||||||||||||||||||||
| Selling, general and administrative expense | 665.9 | 585.9 | |||||||||||||||||||||
| Gain on sale of assets | — | (14.0) | |||||||||||||||||||||
| Other (income) expense | (15.5) | (5.3) | |||||||||||||||||||||
| Income before income taxes | 1,497.3 | 1,034.3 | |||||||||||||||||||||
| Income tax expense | 351.5 | 239.1 | |||||||||||||||||||||
| Net income | 1,145.8 | 795.2 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests | 4.2 | 3.4 | |||||||||||||||||||||
| Net income attributable to D.R. Horton, Inc. | $ | 1,141.6 | $ | 791.8 | |||||||||||||||||||
| Basic net income per common share attributable to D.R. Horton, Inc. | $ | 3.21 | $ | 2.17 | |||||||||||||||||||
| Weighted average number of common shares | 356.1 | 364.4 | |||||||||||||||||||||
| Diluted net income per common share attributable to D.R. Horton, Inc. | $ | 3.17 | $ | 2.14 | |||||||||||||||||||
| Adjusted weighted average number of common shares | 360.1 | 370.0 |
See accompanying notes to consolidated financial statements.
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
| Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
| (In millions, except common stock share data) (Unaudited) | |||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 (356,015,843 shares) | $ | 4.0 | $ | 3,274.8 | $ | 13,644.3 | $ | (2,036.6) | $ | 329.7 | $ | 15,216.2 | |||||||||||||||||||||||
| Net income | — | — | 1,141.6 | — | 4.2 | 1,145.8 | |||||||||||||||||||||||||||||
| Exercise of stock options (244,182 shares) | — | 5.8 | — | — | — | 5.8 | |||||||||||||||||||||||||||||
| Stock issued under employee benefit plans (727,813 shares) | — | 11.4 | — | — | — | 11.4 | |||||||||||||||||||||||||||||
| Cash paid for shares withheld for taxes | — | (33.0) | — | — | — | (33.0) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 23.7 | — | — | — | 23.7 | |||||||||||||||||||||||||||||
| Cash dividends declared ($0.225 per share) | — | — | (80.1) | — | — | (80.1) | |||||||||||||||||||||||||||||
| Repurchases of common stock (2,710,237 shares) | — | — | — | (278.2) | — | (278.2) | |||||||||||||||||||||||||||||
| Change of ownership interest in Forestar | — | — | — | — | 1.8 | 1.8 | |||||||||||||||||||||||||||||
| Balances at December 31, 2021 (354,277,601 shares) | $ | 4.0 | $ | 3,282.7 | $ | 14,705.8 | $ | (2,314.8) | $ | 335.7 | $ | 16,013.4 | |||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||
| (In millions, except common stock share data) (Unaudited) | |||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||
| Net income | — | — | 791.8 | — | 3.4 | 795.2 | |||||||||||||||||||||||||||||
| Exercise of stock options (42,950 shares) | — | 0.9 | — | — | — | 0.9 | |||||||||||||||||||||||||||||
| Stock issued under employee benefit plans (604,947 shares) | 0.1 | — | — | — | — | 0.1 | |||||||||||||||||||||||||||||
| Cash paid for shares withheld for taxes | — | (26.3) | — | — | — | (26.3) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 21.7 | — | — | — | 21.7 | |||||||||||||||||||||||||||||
| Cash dividends declared ($0.20 per share) | — | — | (72.9) | — | — | (72.9) | |||||||||||||||||||||||||||||
| Repurchases of common stock (1,000,000 shares) | — | — | — | (69.8) | — | (69.8) | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | (0.1) | (0.1) | |||||||||||||||||||||||||||||
| Change of ownership interest in Forestar | — | (0.3) | — | — | 0.3 | — | |||||||||||||||||||||||||||||
| Balances at December 31, 2020 (363,647,879 shares) | $ | 4.0 | $ | 3,236.9 | $ | 10,476.7 | $ | (1,232.4) | $ | 285.1 | $ | 12,770.3 | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In millions) (Unaudited) | |||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 1,145.8 | $ | 795.2 | |||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 19.4 | 22.9 | |||||||||
| Stock-based compensation expense | 23.7 | 21.7 | |||||||||
| Deferred income taxes | 17.7 | 2.9 | |||||||||
| Inventory and land option charges | 4.8 | 8.3 | |||||||||
| Gain on sale of assets | — | (14.0) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in construction in progress and finished homes | (1,003.7) | (591.2) | |||||||||
| Increase in residential land and lots – developed, under development, held for development and held for sale | (340.7) | (716.8) | |||||||||
| Increase in rental properties | (319.5) | — | |||||||||
| Increase in other assets | (221.8) | (125.8) | |||||||||
| Decrease in mortgage loans held for sale | 194.0 | 90.1 | |||||||||
| Increase in accounts payable, accrued expenses and other liabilities | 306.2 | 254.6 | |||||||||
| Net cash used in operating activities | (174.1) | (252.1) | |||||||||
| INVESTING ACTIVITIES | |||||||||||
| Expenditures for property and equipment | (30.9) | (16.3) | |||||||||
| Proceeds from sale of assets | — | 31.8 | |||||||||
| Expenditures related to rental properties | — | (86.2) | |||||||||
| Payments related to business acquisitions | — | (23.0) | |||||||||
| Other investing activities | 4.4 | 2.3 | |||||||||
| Net cash used in investing activities | (26.5) | (91.4) | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from notes payable | — | 494.1 | |||||||||
| Repayment of notes payable | (0.6) | (400.1) | |||||||||
| Payments on mortgage repurchase facility, net | (234.6) | (163.5) | |||||||||
| Proceeds from stock associated with certain employee benefit plans | 17.2 | 0.9 | |||||||||
| Cash paid for shares withheld for taxes | (33.0) | (26.3) | |||||||||
| Cash dividends paid | (80.1) | (72.9) | |||||||||
| Repurchases of common stock | (303.8) | (53.8) | |||||||||
| Net proceeds from issuance of Forestar common stock | 0.1 | — | |||||||||
| Other financing activities | 62.8 | (0.1) | |||||||||
| Net cash used in financing activities | (572.0) | (221.7) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (772.6) | (565.2) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 3,237.2 | 3,040.1 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 2,464.6 | $ | 2,474.9 | |||||||
| SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES: | |||||||||||
| Notes payable issued for inventory | $ | 64.3 | $ | 12.5 | |||||||
| Stock issued under employee incentive plans | $ | 66.2 | $ | 44.7 | |||||||
| Repurchase of common stock not settled | $ | — | $ | 16.0 |
See accompanying notes to consolidated financial statements.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
December 31, 2021
NOTE A – BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and all of its 100% owned, majority-owned and controlled subsidiaries, which are collectively referred to as the Company, unless the context otherwise requires. Noncontrolling interests represent the proportionate equity interests in consolidated entities that are not 100% owned by the Company. As of December 31, 2021, the Company owns a 63% controlling interest in Forestar Group Inc. (Forestar) and therefore is required to consolidate 100% of Forestar within its consolidated financial statements, and the 37% interest the Company does not own is accounted for as noncontrolling interests. All intercompany accounts, transactions and balances have been eliminated in consolidation.
The financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, these financial statements reflect all adjustments considered necessary to fairly state the results for the interim periods shown, including normal recurring accruals and other items. These financial statements, including the consolidated balance sheet as of September 30, 2021, which was derived from audited financial statements, do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2021.
Reclassifications
During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment and realigned the aggregation of its homebuilding operating segments into six new reportable segments to better allocate its homebuilding operating segments across geographic reporting regions. The prior year presentation of the Company’s segment information in Note B and in Management’s Discussion and Analysis of Financial Condition and Results of Operations has been conformed to the current presentation for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Seasonality
Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2022 or subsequent periods.
Pending Accounting Standards
In March 2020, the Financial Accounting Standards Board (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. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance. The Company will adopt these standards when LIBOR is discontinued and does not expect them to have a material impact on its consolidated financial statements or related disclosures.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
In October 2021, the FASB issued ASU 2021-08, which requires application of ASC 606, “Revenue from Contracts with Customers,” to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805 and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The guidance is effective for the Company beginning October 1, 2023 and interim periods therein, with early adoption 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.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE B – SEGMENT INFORMATION
The Company is a national homebuilder that is primarily engaged in the acquisition and development of land and the construction and sale of residential homes, with operations in 102 markets across 32 states. The Company’s operating segments are its 77 homebuilding divisions, its majority-owned Forestar residential lot development operations, its financial services operations, its rental operations and its other business activities. The Company’s reporting segments are its homebuilding reporting segments, its Forestar lot development segment, its financial services segment and its rental operations segment.
During the fourth quarter of fiscal 2021, the Company changed its internal organization and reporting of its operating segments and reportable segments to combine its single-family rental operations and its multi-family rental operations into a new reporting segment to reflect the method by which the chief operating decision makers manage the business, evaluate internal results and allocate financial resources. Additionally, during the fourth quarter of fiscal 2021, the Company realigned the aggregation of its homebuilding operating segments into six new reportable segments to better allocate its homebuilding operating segments across geographic reporting regions. Segment information for the three months ended December 31, 2020 has been reclassified to conform to the current presentation.
Homebuilding
Based on the aggregation of the homebuilding operating segments, the Company’s six reporting segments and the states in which it has homebuilding operations are as follows:
| Northwest: | Colorado, Oregon, Utah and Washington | ||||||||||
| Southwest: | Arizona, California, Hawaii, Nevada and New Mexico | ||||||||||
| South Central: | Oklahoma and Texas | ||||||||||
| Southeast: | Alabama, Florida, Louisiana and Mississippi | ||||||||||
| East: | Georgia, North Carolina, South Carolina and Tennessee | ||||||||||
| North: | Delaware, Illinois, Indiana, Iowa, Kentucky, Maryland, Minnesota, Nebraska, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia |
The Company’s homebuilding divisions design, build and sell single-family detached homes on lots they develop and on fully developed lots purchased ready for home construction. To a lesser extent, the homebuilding divisions also build and sell attached homes, such as townhomes, duplexes and triplexes. Most of the revenue generated by the Company’s homebuilding operations is from the sale of completed homes and to a lesser extent from the sale of land and lots.
Forestar
The Forestar segment is a residential lot development company with operations in 55 markets across 23 states. Forestar has made significant investments in land acquisition and development to expand its business across the United States. The homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies. Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance.
Financial Services
The Company’s financial services segment provides mortgage financing and title agency services to homebuyers in many of the Company’s homebuilding markets. The segment generates the substantial majority of its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services. The Company sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
Rental
The Company’s rental segment consists of multi-family and single-family rental operations. The multi-family rental operations develop, construct, lease and sell residential rental properties. The single-family rental operations primarily construct and lease single-family homes and then market the community for a bulk sale of rental homes.
Other
In addition to its homebuilding, Forestar, financial services and rental operations, the Company engages in other business activities through its subsidiaries. The Company conducts insurance-related operations, owns non-residential real estate including ranch land and improvements and owns and operates energy-related assets. The results of these operations are immaterial for separate reporting and therefore are grouped together and presented as other within the Eliminations and Other column in the tables that follow.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
The accounting policies of the reporting segments are described throughout Note A included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2021. Financial information relating to the Company’s reporting segments is as follows:
| December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Homebuilding | Forestar (1) | Financial Services | Rental | Eliminations and Other (2) | Consolidated | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,133.4 | $ | 162.5 | $ | 88.2 | $ | 44.2 | $ | 13.8 | $ | 2,442.1 | ||||||||||||||||||||||||||
| Restricted cash | 12.4 | — | 9.5 | 0.6 | — | 22.5 | ||||||||||||||||||||||||||||||||
| Inventories: | ||||||||||||||||||||||||||||||||||||||
| Construction in progress and finished homes | 8,879.5 | — | — | — | (136.6) | 8,742.9 | ||||||||||||||||||||||||||||||||
| Residential land and lots — developed and under development | 6,366.7 | 1,854.6 | — | — | (58.9) | 8,162.4 | ||||||||||||||||||||||||||||||||
| Land held for development | 25.9 | 105.5 | — | — | — | 131.4 | ||||||||||||||||||||||||||||||||
| Land held for sale | 24.8 | — | — | — | — | 24.8 | ||||||||||||||||||||||||||||||||
| Rental properties | — | — | — | 1,161.1 | (20.1) | 1,141.0 | ||||||||||||||||||||||||||||||||
| 15,296.9 | 1,960.1 | — | 1,161.1 | (215.6) | 18,202.5 | |||||||||||||||||||||||||||||||||
| Mortgage loans held for sale | — | — | 1,833.3 | — | — | 1,833.3 | ||||||||||||||||||||||||||||||||
| Deferred income taxes, net | 141.6 | — | — | — | (4.0) | 137.6 | ||||||||||||||||||||||||||||||||
| Property and equipment, net | 315.5 | 4.2 | 3.3 | 0.7 | 86.7 | 410.4 | ||||||||||||||||||||||||||||||||
| Other assets | 1,689.3 | 35.7 | 93.3 | 9.0 | (39.8) | 1,787.5 | ||||||||||||||||||||||||||||||||
| Goodwill | 134.3 | — | — | — | 29.2 | 163.5 | ||||||||||||||||||||||||||||||||
| $ | 19,723.4 | $ | 2,162.5 | $ | 2,027.6 | $ | 1,215.6 | $ | (129.7) | $ | 24,999.4 | |||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Accounts payable | $ | 1,021.5 | $ | 53.5 | $ | — | $ | 75.7 | $ | — | $ | 1,150.7 | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities | 2,316.4 | 345.7 | 75.7 | 8.9 | (166.7) | 2,580.0 | ||||||||||||||||||||||||||||||||
| Notes payable | 3,291.0 | 704.9 | 1,260.0 | — | (0.6) | 5,255.3 | ||||||||||||||||||||||||||||||||
| $ | 6,628.9 | $ | 1,104.1 | $ | 1,335.7 | $ | 84.6 | $ | (167.3) | $ | 8,986.0 |
(1)Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.
(2)Amounts include the balances of the Company’s other businesses, the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
| September 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| Homebuilding | Forestar (1) | Financial Services | Rental | Eliminations and Other (2) | Consolidated | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 2,950.1 | $ | 153.6 | $ | 79.0 | $ | 16.8 | $ | 10.9 | $ | 3,210.4 | ||||||||||||||||||||||||||
| Restricted cash | 8.4 | — | 18.0 | 0.4 | — | 26.8 | ||||||||||||||||||||||||||||||||
| Inventories: | ||||||||||||||||||||||||||||||||||||||
| Construction in progress and finished homes | 7,848.0 | — | — | — | (108.8) | 7,739.2 | ||||||||||||||||||||||||||||||||
| Residential land and lots — developed and under development | 6,004.0 | 1,824.7 | — | — | (46.9) | 7,781.8 | ||||||||||||||||||||||||||||||||
| Land held for development | 30.4 | 80.5 | — | — | — | 110.9 | ||||||||||||||||||||||||||||||||
| Land held for sale | 25.4 | — | — | — | — | 25.4 | ||||||||||||||||||||||||||||||||
| Rental properties | — | — | — | 840.9 | (19.1) | 821.8 | ||||||||||||||||||||||||||||||||
| 13,907.8 | 1,905.2 | — | 840.9 | (174.8) | 16,479.1 | |||||||||||||||||||||||||||||||||
| Mortgage loans held for sale | — | — | 2,027.3 | — | — | 2,027.3 | ||||||||||||||||||||||||||||||||
| Deferred income taxes, net | 159.2 | — | — | — | (3.9) | 155.3 | ||||||||||||||||||||||||||||||||
| Property and equipment, net | 303.3 | 2.9 | 3.5 | 0.6 | 82.6 | 392.9 | ||||||||||||||||||||||||||||||||
| Other assets | 1,468.7 | 40.0 | 107.6 | 6.3 | (62.0) | 1,560.6 | ||||||||||||||||||||||||||||||||
| Goodwill | 134.3 | — | — | — | 29.2 | 163.5 | ||||||||||||||||||||||||||||||||
| $ | 18,931.8 | $ | 2,101.7 | $ | 2,235.4 | $ | 865.0 | $ | (118.0) | $ | 24,015.9 | |||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Accounts payable | $ | 1,073.7 | $ | 47.4 | $ | — | $ | 55.9 | $ | — | $ | 1,177.0 | ||||||||||||||||||||||||||
| Accrued expenses and other liabilities | 1,941.3 | 333.9 | 88.6 | 15.0 | (168.5) | 2,210.3 | ||||||||||||||||||||||||||||||||
| Notes payable | 3,214.0 | 704.5 | 1,494.6 | — | (0.7) | 5,412.4 | ||||||||||||||||||||||||||||||||
| $ | 6,229.0 | $ | 1,085.8 | $ | 1,583.2 | $ | 70.9 | $ | (169.2) | $ | 8,799.7 |
(1)Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.
(2)Amounts include the balances of the Company’s other businesses, the elimination of intercompany transactions and, to a lesser extent, purchase accounting adjustments related to the Forestar acquisition.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
| Three Months Ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||||
| Homebuilding | Forestar (1) | Financial Services | Rental | Eliminations and Other (2) | Consolidated | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||
| Home sales | $ | 6,656.4 | $ | — | $ | — | $ | — | $ | — | $ | 6,656.4 | ||||||||||||||||||||||||||
| Land/lot sales and other | 23.0 | 407.6 | — | — | (374.4) | 56.2 | ||||||||||||||||||||||||||||||||
| Rental property sales | — | — | — | 156.5 | — | 156.5 | ||||||||||||||||||||||||||||||||
| Financial services | — | — | 184.3 | — | — | 184.3 | ||||||||||||||||||||||||||||||||
| 6,679.4 | 407.6 | 184.3 | 156.5 | (374.4) | 7,053.4 | |||||||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||||||||
| Home sales (3) | 4,833.9 | — | — | — | (37.7) | 4,796.2 | ||||||||||||||||||||||||||||||||
| Land/lot sales and other | 17.1 | 333.6 | — | — | (317.7) | 33.0 | ||||||||||||||||||||||||||||||||
| Rental property sales | — | — | — | 72.5 | (0.8) | 71.7 | ||||||||||||||||||||||||||||||||
| Inventory and land option charges | 3.9 | 0.6 | — | 0.3 | — | 4.8 | ||||||||||||||||||||||||||||||||
| 4,854.9 | 334.2 | — | 72.8 | (356.2) | 4,905.7 | |||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | 497.7 | 21.5 | 125.3 | 18.5 | 2.9 | 665.9 | ||||||||||||||||||||||||||||||||
| Other (income) expense | (6.2) | (1.6) | (8.1) | (4.9) | 5.3 | (15.5) | ||||||||||||||||||||||||||||||||
| Income before income taxes | $ | 1,333.0 | $ | 53.5 | $ | 67.1 | $ | 70.1 | $ | (26.4) | $ | 1,497.3 | ||||||||||||||||||||||||||
| Summary Cash Flow Information | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 15.4 | $ | 0.5 | $ | 0.4 | $ | 0.1 | $ | 3.0 | $ | 19.4 | ||||||||||||||||||||||||||
| Cash (used in) provided by operating activities | $ | (114.7) | $ | 5.8 | $ | 247.5 | $ | (255.9) | $ | (56.8) | $ | (174.1) |
(1)Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.
(2)Amounts include the results of the Company’s other businesses and the elimination of intercompany transactions.
(3)Amount in the Eliminations and Other column represents the recognition of profit on lots sold from Forestar to the homebuilding segment. Intercompany profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
| Three Months Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| Homebuilding | Forestar (1) | Financial Services | Rental | Eliminations and Other (2) | Consolidated | |||||||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||||||||
| Home sales | $ | 5,698.7 | $ | — | $ | — | $ | — | $ | — | $ | 5,698.7 | ||||||||||||||||||||||||||
| Land/lot sales and other | 17.9 | 307.1 | — | — | (277.5) | 47.5 | ||||||||||||||||||||||||||||||||
| Rental property sales | — | — | — | 31.8 | (31.8) | — | ||||||||||||||||||||||||||||||||
| Financial services | — | — | 187.2 | — | — | 187.2 | ||||||||||||||||||||||||||||||||
| 5,716.6 | 307.1 | 187.2 | 31.8 | (309.3) | 5,933.4 | |||||||||||||||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||||||||||||||
| Home sales (3) | 4,325.1 | — | — | — | (27.7) | 4,297.4 | ||||||||||||||||||||||||||||||||
| Land/lot sales and other | 13.7 | 262.5 | — | — | (249.4) | 26.8 | ||||||||||||||||||||||||||||||||
| Rental property sales | — | — | — | 17.8 | (17.8) | — | ||||||||||||||||||||||||||||||||
| Inventory and land option charges | 7.9 | 0.4 | — | — | — | 8.3 | ||||||||||||||||||||||||||||||||
| 4,346.7 | 262.9 | — | 17.8 | (294.9) | 4,332.5 | |||||||||||||||||||||||||||||||||
| Selling, general and administrative expense | 449.4 | 15.5 | 109.5 | 9.3 | 2.2 | 585.9 | ||||||||||||||||||||||||||||||||
| Gain on sale of assets | — | — | — | — | (14.0) | (14.0) | ||||||||||||||||||||||||||||||||
| Other (income) expense | (2.1) | (0.5) | (6.4) | (3.9) | 7.6 | (5.3) | ||||||||||||||||||||||||||||||||
| Income before income taxes | $ | 922.6 | $ | 29.2 | $ | 84.1 | $ | 8.6 | $ | (10.2) | $ | 1,034.3 | ||||||||||||||||||||||||||
| Summary Cash Flow Information | ||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 16.4 | $ | 0.7 | $ | 0.4 | $ | 2.7 | $ | 2.7 | $ | 22.9 | ||||||||||||||||||||||||||
| Cash (used in) provided by operating activities | $ | (269.6) | $ | (158.7) | $ | 173.1 | $ | (58.9) | $ | 62.0 | $ | (252.1) |
(1)Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance.
(2)Amounts include the results of the Company’s other businesses, reconciling amounts between segment and consolidated balances and the elimination of intercompany transactions.
(3)Amount in the Eliminations and Other column represents the recognition of profit on lots sold from Forestar to the homebuilding segment. Intercompany profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
| Homebuilding Inventories by Reporting Segment (1) | December 31, 2021 | September 30, 2021 | ||||||||||||
| (In millions) | ||||||||||||||
| Northwest | $ | 1,450.8 | $ | 1,307.5 | ||||||||||
| Southwest | 2,743.3 | 2,445.6 | ||||||||||||
| South Central | 3,772.2 | 3,479.3 | ||||||||||||
| Southeast | 3,444.9 | 3,178.6 | ||||||||||||
| East | 2,118.3 | 1,919.6 | ||||||||||||
| North | 1,558.4 | 1,368.9 | ||||||||||||
| Corporate and unallocated (2) | 209.0 | 208.3 | ||||||||||||
| $ | 15,296.9 | $ | 13,907.8 |
(1)Homebuilding inventories are the only assets included in the measure of homebuilding segment assets used by the Company’s chief operating decision makers.
(2)Corporate and unallocated consists primarily of homebuilding capitalized interest and property taxes.
| Homebuilding Results by Reporting Segment | Three Months Ended December 31, | |||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||
| Northwest | $ | 569.0 | $ | 548.0 | ||||||||||||||||||||||
| Southwest | 911.6 | 838.6 | ||||||||||||||||||||||||
| South Central | 1,694.3 | 1,363.5 | ||||||||||||||||||||||||
| Southeast | 1,810.9 | 1,465.0 | ||||||||||||||||||||||||
| East | 1,074.9 | 1,007.7 | ||||||||||||||||||||||||
| North | 618.7 | 493.8 | ||||||||||||||||||||||||
| $ | 6,679.4 | $ | 5,716.6 | |||||||||||||||||||||||
| Income before Income Taxes | ||||||||||||||||||||||||||
| Northwest | $ | 111.8 | $ | 86.8 | ||||||||||||||||||||||
| Southwest | 159.3 | 115.2 | ||||||||||||||||||||||||
| South Central | 354.3 | 240.0 | ||||||||||||||||||||||||
| Southeast | 415.4 | 247.2 | ||||||||||||||||||||||||
| East | 202.3 | 170.7 | ||||||||||||||||||||||||
| North | 89.9 | 62.7 | ||||||||||||||||||||||||
| $ | 1,333.0 | $ | 922.6 |
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE C – INVENTORIES
At the end of each quarter, the Company reviews the performance and outlook for all of its communities and land inventories for indicators of potential impairment and performs detailed impairment evaluations and analyses when necessary. As of December 31, 2021, the Company determined that no communities were impaired, and no impairment charges were recorded during the three months ended December 31, 2021, compared to $5.6 million of impairment charges recorded in the prior year period.
During the three months ended December 31, 2021, earnest money and pre-acquisition cost write-offs related to land purchase contracts that the Company has terminated or expects to terminate were $4.8 million, compared to $2.7 million in the same period of fiscal 2021. Inventory impairments and land option charges are included in cost of sales in the consolidated statements of operations.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE D – NOTES PAYABLE
The Company’s notes payable at their carrying amounts consist of the following:
| December 31, 2021 | September 30, 2021 | |||||||||||||
| (In millions) | ||||||||||||||
| Homebuilding: | ||||||||||||||
| Unsecured: | ||||||||||||||
| Revolving credit facility | $ | — | $ | — | ||||||||||
| 4.375% senior notes due 2022 (1) | 349.7 | 349.6 | ||||||||||||
| 4.75% senior notes due 2023 (1) | 299.6 | 299.5 | ||||||||||||
| 5.75% senior notes due 2023 (1) | 399.2 | 399.1 | ||||||||||||
| 2.5% senior notes due 2024 (1) | 497.5 | 497.3 | ||||||||||||
| 2.6% senior notes due 2025 (1) | 496.5 | 496.2 | ||||||||||||
| 1.3% senior notes due 2026 (1) | 594.8 | 594.5 | ||||||||||||
| 1.4% senior notes due 2027 (1) | 495.1 | 494.9 | ||||||||||||
| Other secured notes (2) | 158.0 | 82.2 | ||||||||||||
| 3,290.4 | 3,213.3 | |||||||||||||
| Forestar: | ||||||||||||||
| Unsecured: | ||||||||||||||
| Revolving credit facility | — | — | ||||||||||||
| 3.85% senior notes due 2026 (3) | 395.7 | 395.5 | ||||||||||||
| 5.0% senior notes due 2028 (3) | 296.7 | 296.5 | ||||||||||||
| Other secured notes | 12.5 | 12.5 | ||||||||||||
| 704.9 | 704.5 | |||||||||||||
| Financial Services: | ||||||||||||||
| Mortgage repurchase facility | 1,260.0 | 1,494.6 | ||||||||||||
| Total (4) | $ | 5,255.3 | $ | 5,412.4 |
(1)Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $15.4 million and $16.5 million at December 31, 2021 and September 30, 2021, respectively.
(2)Homebuilding other secured notes excludes $0.6 million and $0.7 million of earnest money notes payable to Forestar at December 31, 2021 and September 30, 2021, respectively. These intercompany notes are eliminated in consolidation.
(3)Debt issuance costs that were deducted from the carrying amount of Forestar’s senior notes totaled $7.6 million and $8.0 million at December 31, 2021 and September 30, 2021, respectively.
(4)The fair value of notes payable at December 31, 2021 totaled $5.3 billion, of which $3.9 billion was measured using Level 2 inputs and $1.4 billion was measured using Level 3 inputs. The fair value of notes payable at September 30, 2021 totaled $5.5 billion, of which $3.9 billion was measured using Level 2 inputs and $1.6 billion was measured using Level 3 inputs.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
Homebuilding:
The Company has a $2.19 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $3.0 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment. Letters of credit issued under the facility reduce the available borrowing capacity. The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is April 20, 2026. At December 31, 2021, there were no borrowings outstanding and $187.2 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $2.0 billion.
The Company’s homebuilding revolving credit facility imposes restrictions on its operations and activities, including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if the leverage ratio exceeds a certain level. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. The credit agreement governing the facility and the indentures governing the senior notes also impose restrictions on the creation of secured debt and liens. At December 31, 2021, the Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit facility and public debt obligations.
D.R. Horton has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in July 2021, registering debt and equity securities that the Company may issue from time to time in amounts to be determined.
In July 2019, the Board of Directors authorized the repurchase of up to $500 million of the Company’s debt securities. The authorization has no expiration date. All of the $500 million authorization was remaining at December 31, 2021.
Forestar:
Forestar has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on Forestar’s book value of its real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is April 16, 2025. At December 31, 2021, there were no borrowings outstanding and $66.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $343.7 million.
The Forestar revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require Forestar to maintain a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.
Forestar’s revolving credit facility and its senior notes are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. At December 31, 2021, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
In April 2020, Forestar’s Board of Directors authorized the repurchase of up to $30 million of Forestar’s debt securities. The authorization has no expiration date. All of the $30 million authorization was remaining at December 31, 2021.
Financial Services:
The Company’s mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties upon receipt of funds from the counterparties. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility. The total capacity of the facility is $1.4 billion; however, the capacity automatically increases during certain higher volume periods and can be further increased through additional commitments. The total capacity of the facility at December 31, 2021 was $1.633 billion, and its maturity date is February 18, 2022. DHI Mortgage expects to renew and extend the maturity date of the facility.
As of December 31, 2021, $1.7 billion of mortgage loans held for sale with a collateral value of $1.7 billion were pledged under the mortgage repurchase facility. As a result of advance paydowns totaling $436.5 million, DHI Mortgage had an obligation of $1.3 billion outstanding under the mortgage repurchase facility at December 31, 2021 at a 2.1% annual interest rate.
The mortgage repurchase facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants are measured and reported to the lenders monthly. At December 31, 2021, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facility.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE E – CAPITALIZED INTEREST
The Company capitalizes interest costs incurred to inventory during active development and construction (active inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. During periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected as interest expense in the period incurred. During the first three months of fiscal 2022 and fiscal 2021, the Company’s active inventory exceeded its debt level, and all interest incurred was capitalized to inventory.
The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the three months ended December 31, 2021 and 2020:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Capitalized interest, beginning of period | $ | 217.7 | $ | 207.7 | ||||||||||||||||||||||
| Interest incurred (1) | 36.9 | 40.4 | ||||||||||||||||||||||||
| Interest charged to cost of sales | (33.3) | (33.0) | ||||||||||||||||||||||||
| Capitalized interest, end of period | $ | 221.3 | $ | 215.1 |
(1) Interest incurred includes interest on the Company's mortgage repurchase facility of $4.0 million and $4.5 million in the three months ended December 31, 2021 and 2020, respectively, and Forestar interest of $8.1 million and $11.5 million in those periods.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE F – MORTGAGE LOANS
Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. The Company typically sells the servicing rights for the majority of loans when the loans are sold. Servicing rights retained are typically sold within six months of loan origination. At December 31, 2021, mortgage loans held for sale of $1.83 billion had an aggregate outstanding principal balance of $1.79 billion. At September 30, 2021, mortgage loans held for sale of $2.03 billion had an aggregate outstanding principal balance of $1.97 billion. Mortgage loans held for sale at both dates were primarily composed of mortgage loans measured at fair value on a recurring basis using Level 2 inputs.
During the three months ended December 31, 2021 and 2020, mortgage loans originated totaled $3.9 billion and $3.5 billion, respectively, and mortgage loans sold totaled $4.1 billion and $3.6 billion, respectively. The Company had gains on sales of loans and servicing rights of $134.1 million during the three months ended December 31, 2021 compared to $138.9 million in the prior year period. Net gains on sales of loans and servicing rights are included in revenues in the consolidated statements of operations. During the three months ended December 31, 2021, approximately 61% of the Company’s mortgage loans were sold directly to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or into securities backed by the Government National Mortgage Association (Ginnie Mae), and 30% were sold to one other major financial entity.
The Company also uses hedging instruments as part of a program to offer below market interest rate financing to its homebuyers. At December 31, 2021 and September 30, 2021, the Company had mortgage-backed securities (MBS) totaling $1.2 billion and $834.6 million, respectively, that did not yet have interest rate lock commitments (IRLCs) or closed loans created or assigned and recorded an asset of $1.3 million and $1.1 million, respectively, for the fair value of such MBS position.
The Company is party to IRLCs, which are extended to borrowers who have applied for loan funding and meet defined credit and underwriting criteria. At December 31, 2021 and September 30, 2021, the notional amount of IRLCs, which are accounted for as derivative instruments recorded at fair value using Level 2 inputs, totaled $1.8 billion and $1.5 billion, respectively.
NOTE G – INCOME TAXES
The Company’s income tax expense for the three months ended December 31, 2021 and 2020 was $351.5 million and $239.1 million, respectively. The effective tax rate was 23.5% for the three months ended December 31, 2021 compared to 23.1% in the prior year period. The effective tax rates for both periods include an expense for state income taxes and tax benefits related to stock-based compensation and the federal energy efficient homes tax credit. The federal energy efficient homes tax credit expires for homes closed after December 31, 2021.
The Company’s deferred tax assets, net of deferred tax liabilities, were $141.7 million at December 31, 2021 compared to $159.5 million at September 30, 2021. The Company has a valuation allowance of $4.1 million and $4.2 million at December 31, 2021 and September 30, 2021, respectively, related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance with respect to the remaining state NOL carryforwards. Any reversal of the valuation allowance in future periods will impact the Company’s effective tax rate.
The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE H – EARNINGS PER SHARE
The following table sets forth the numerators and denominators used in the computation of basic and diluted earnings per share.
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income attributable to D.R. Horton, Inc. | $ | 1,141.6 | $ | 791.8 | ||||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Denominator for basic earnings per share — weighted average common shares | 356.1 | 364.4 | ||||||||||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||||||||||||
| Employee stock awards | 4.0 | 5.6 | ||||||||||||||||||||||||
| Denominator for diluted earnings per share — adjusted weighted average common shares | 360.1 | 370.0 | ||||||||||||||||||||||||
| Basic net income per common share attributable to D.R. Horton, Inc. | $ | 3.21 | $ | 2.17 | ||||||||||||||||||||||
| Diluted net income per common share attributable to D.R. Horton, Inc. | $ | 3.17 | $ | 2.14 |
NOTE I – STOCKHOLDERS’ EQUITY
D.R. Horton has an automatically effective universal shelf registration statement, filed with the SEC in July 2021, registering debt and equity securities that it may issue from time to time in amounts to be determined.
Forestar has an effective shelf registration statement, filed with the SEC in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under its at-the-market equity offering program that became effective in November 2021. During the three months ended December 31, 2021, Forestar issued 84,547 shares of common stock under its at-the-market equity offering program for proceeds of $1.7 million, net of commissions and other issuance costs totaling $0.1 million. At December 31, 2021, $748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $298.2 million was reserved for sales under its at-the-market equity offering program.
In April 2021, the Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s common stock, replacing the prior authorization. The authorization has no expiration date. During the three months ended December 31, 2021, the Company repurchased 2.7 million shares of its common stock for $278.2 million. At December 31, 2021, there was $268.0 million remaining on the repurchase authorization.
During the three months ended December 31, 2021, the Board of Directors approved a quarterly cash dividend of $0.225 per common share, which was paid on December 15, 2021 to stockholders of record on December 6, 2021. In January 2022, the Board of Directors approved a quarterly cash dividend of $0.225 per common share, payable on February 25, 2022 to stockholders of record on February 17, 2022. Cash dividends of $0.20 per common share were approved and paid in each quarter of fiscal 2021.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE J – EMPLOYEE BENEFIT PLANS
Restricted Stock Units (RSUs)
The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to executive officers, other key employees and non-management directors. RSU awards may be based on performance (performance-based) or on service over a requisite time period (time-based). Performance-based and time-based RSU equity awards represent the contingent right to receive one share of the Company’s common stock per RSU if the vesting conditions and/or performance criteria are satisfied. The RSUs have no dividend or voting rights until vested.
In October 2021, the Company granted 390,000 performance-based RSU equity awards to its executive officers. These awards vest at the end of a three-year performance period ending September 30, 2024. The number of units that ultimately vest depends on the Company’s relative position as compared to its peers in achieving certain performance criteria and can range from 0% to 200% of the number of units granted. The performance criteria are total shareholder return; return on investment; selling, general and administrative expense containment; and gross profit. The grant date fair value of these equity awards was $89.95 per unit. Compensation expense related to this grant was $4.1 million in the three months ended December 31, 2021 based on an estimate of the Company’s performance against its peer group, the elapsed portion of the performance period and the grant date fair value of the award.
Total stock-based compensation expense related to the Company’s performance-based and time-based RSUs was $21.9 million during the three months ended December 31, 2021 compared to $21.2 million during the three months ended December 31, 2020.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE K – COMMITMENTS AND CONTINGENCIES
Warranty Claims
The Company provides its homebuyers with a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems and a one-year limited warranty on other construction components. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.
Changes in the Company’s warranty liability during the three months ended December 31, 2021 and 2020 were as follows:
| Three Months Ended December 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||
| Warranty liability, beginning of period | $ | 376.3 | $ | 310.2 | ||||||||||||||||||||||
| Warranties issued | 38.8 | 33.3 | ||||||||||||||||||||||||
| Changes in liability for pre-existing warranties | 4.4 | 2.6 | ||||||||||||||||||||||||
| Settlements made | (29.5) | (22.1) | ||||||||||||||||||||||||
| Warranty liability, end of period | $ | 390.0 | $ | 324.0 |
Legal Claims and Insurance
The Company is named as a defendant in various claims, complaints and other legal actions in the ordinary course of business. At any point in time, the Company is managing several hundred individual claims related to construction defect matters, personal injury claims, employment matters, land development issues, contract disputes and other matters. The Company has established reserves for these contingencies based on the estimated costs of pending claims and the estimated costs of anticipated future claims related to previously closed homes. The estimated liabilities for these contingencies were $585.2 million and $577.5 million at December 31, 2021 and September 30, 2021, respectively, and are included in accrued expenses and other liabilities in the consolidated balance sheets. Approximately 99% of these reserves related to construction defect matters at both December 31, 2021 and September 30, 2021. Expenses related to the Company’s legal contingencies were $12.9 million and $17.4 million in the three months ended December 31, 2021 and 2020, respectively.
Changes in the Company’s legal claims reserves during the three months ended December 31, 2021 and 2020 were as follows:
| Three Months Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| (In millions) | |||||||||||
| Reserves for legal claims, beginning of period | $ | 577.5 | $ | 473.8 | |||||||
| Increase in reserves | 14.5 | 24.2 | |||||||||
| Payments | (6.8) | (6.2) | |||||||||
| Reserves for legal claims, end of period | $ | 585.2 | $ | 491.8 |
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
The Company estimates and records receivables under its applicable insurance policies related to its estimated contingencies for known claims and anticipated future construction defect claims on previously closed homes and other legal claims and lawsuits incurred in the ordinary course of business when recovery is probable. However, because the self-insured retentions under these policies are significant, the Company anticipates it will largely be self-insured. The Company’s estimated insurance receivables from estimated losses for pending legal claims and anticipated future claims related to previously closed homes totaled $107.0 million, $109.5 million and $82.2 million at December 31, 2021, September 30, 2021 and December 31, 2020, respectively, and are included in other assets in the consolidated balance sheets. Additionally, the Company may have the ability to recover a portion of its losses from its subcontractors and their insurance carriers when the Company has been named as an additional insured on their insurance policies.
The estimation of losses related to these reserves and the related estimates of recoveries from insurance policies are subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to the Company’s markets and the types of products built, claim frequency, claim settlement costs and patterns, insurance industry practices and legal interpretations, among others. Due to the high degree of judgment required in establishing reserves for these contingencies, actual future costs and recoveries from insurance could differ significantly from current estimated amounts, and it is not possible for the Company to make a reasonable estimate of the possible loss or range of loss in excess of its reserves.
Land and Lot Purchase Contracts
The Company enters into land and lot purchase contracts to acquire land or lots for the construction of homes. Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase contract deposits and capitalized pre-acquisition costs are expensed to inventory and land option charges when the Company believes it is probable that it will not acquire the property under contract and will not be able to recover these costs through other means.
At December 31, 2021, the Company had total deposits of $1.3 billion, consisting of cash deposits of $1.2 billion and promissory notes and surety bonds of $91.9 million, related to contracts to purchase land and lots with a total remaining purchase price of approximately $17.1 billion. The majority of land and lots under contract are currently expected to be purchased within three years. Of these amounts, $141.5 million of the deposits related to contracts with Forestar to purchase land and lots with a remaining purchase price of $1.5 billion. A limited number of the homebuilding land and lot purchase contracts at December 31, 2021, representing $87.7 million of remaining purchase price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon the land sellers meeting their respective contractual obligations. Of the $87.7 million remaining purchase price subject to specific performance provisions, $64.8 million related to contracts between the homebuilding segment and Forestar.
During the three months ended December 31, 2021 and 2020, Forestar reimbursed the homebuilding segment $2.7 million and $16.1 million, respectively, for previously paid earnest money and $21.6 million and $20.9 million, respectively, for pre-acquisition and other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under contract to Forestar.
Other Commitments
At December 31, 2021, the Company had outstanding surety bonds of $2.4 billion and letters of credit of $253.5 million to secure performance under various contracts. Of the total letters of credit, $187.2 million were issued under the homebuilding revolving credit facility and $66.3 million were issued under Forestar’s revolving credit facility.
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
December 31, 2021
NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES
The Company’s other assets at December 31, 2021 and September 30, 2021 were as follows:
| December 31, 2021 | September 30, 2021 | |||||||||||||
| (In millions) | ||||||||||||||
| Earnest money and refundable deposits | $ | 1,278.9 | $ | 1,079.8 | ||||||||||
| Insurance receivables | 107.0 | 109.5 | ||||||||||||
| Other receivables | 154.3 | 153.6 | ||||||||||||
| Prepaid assets | 70.4 | 51.6 | ||||||||||||
| Contract assets - insurance agency commissions | 60.8 | 58.6 | ||||||||||||
| Lease right of use assets | 38.1 | 35.6 | ||||||||||||
| Interest rate lock commitments | 24.6 | 17.9 | ||||||||||||
| Mortgage servicing rights | 8.3 | 4.1 | ||||||||||||
| Other | 45.1 | 49.9 | ||||||||||||
| $ | 1,787.5 | $ | 1,560.6 |
The Company’s accrued expenses and other liabilities at December 31, 2021 and September 30, 2021 were as follows:
| December 31, 2021 | September 30, 2021 | |||||||||||||
| (In millions) | ||||||||||||||
| Reserves for legal claims | $ | 585.2 | $ | 577.5 | ||||||||||
| Employee compensation and related liabilities | 428.1 | 492.1 | ||||||||||||
| Warranty liability | 390.0 | 376.3 | ||||||||||||
| Customer deposits | 218.2 | 193.4 | ||||||||||||
| Inventory related accruals | 274.5 | 261.2 | ||||||||||||
| Federal and state income tax liabilities | 430.5 | 88.2 | ||||||||||||
| Accrued property taxes | 32.2 | 51.0 | ||||||||||||
| Lease liabilities | 39.3 | 37.0 | ||||||||||||
| Accrued interest | 37.2 | 31.5 | ||||||||||||
| Other | 144.8 | 102.1 | ||||||||||||
| $ | 2,580.0 | $ | 2,210.3 |
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