Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this quarterly report and with our annual report on Form 10-K for the fiscal year ended September 30, 2023. Some of the information contained in this discussion and analysis constitutes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those described in the “Forward-Looking Statements” section following this discussion.

BUSINESS

D.R. Horton, Inc. is the largest homebuilding company in the United States as measured by number of homes closed. We construct and sell homes through our operating divisions in 118 markets across 33 states. Our common stock is included in the S&P 500 Index and listed on the New York Stock Exchange under the ticker symbol “DHI.” Unless the context otherwise requires, the terms “D.R. Horton,” the “Company,” “we” and “our” used herein refer to D.R. Horton, Inc., a Delaware corporation, and its predecessors and subsidiaries.

Our business operations consist of homebuilding, rental, a majority-owned residential lot development company, financial services and other activities. Our homebuilding operations are our core business and primarily include the construction and sale of single-family homes with sales prices generally ranging from $200,000 to more than $1,000,000, with an average closing price of $376,200 during the three months ended December 31, 2023. Approximately 88% of our home sales revenue in the three months ended December 31, 2023 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.

We have closed more than one million homes during our 45-year history, and we have been the largest volume homebuilder in the United States every year since 2002. Our product offerings include a broad range of homes for entry-level, move-up, active adult and luxury buyers.

At December 31, 2023, we owned 63% of the outstanding shares of Forestar Group Inc. (Forestar), a publicly traded residential lot development company listed on the New York Stock Exchange under the ticker symbol “FOR.” Forestar operates across many of our homebuilding operating markets and is a key part of our homebuilding strategy to maintain relationships with land developers and to control a large portion of our land and lot position through land purchase contracts.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets. DHI Mortgage, our wholly-owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the related servicing rights to third-party purchasers after origination. Our wholly-owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination, underwriting and closing services primarily to our homebuilding customers.

In addition to our homebuilding, rental, Forestar and financial services operations, we engage in other business activities through our subsidiaries. We conduct insurance-related operations, own water rights and other water-related assets and own non-residential real estate including ranch land and improvements. The results of these operations are immaterial for separate reporting and therefore are grouped together and presented as other.

OVERVIEW

During the three months ended December 31, 2023, our number of homes closed increased 12%, and our home sales revenues increased 8% compared to the prior year period. Our consolidated revenues increased 6% to $7.7 billion in the three months ended December 31, 2023 compared to $7.3 billion in the prior year period. Our pre-tax income was $1.2 billion in the three months ended December 31, 2023 compared to $1.3 billion in the prior year period, and our pre-tax operating margin was 16.1% compared to 17.5%. Net income was $955.7 million in the three months ended December 31, 2023 compared to $968.3 million in the prior year period, and our diluted earnings per share were $2.82 compared to $2.76.

In the trailing twelve months ended December 31, 2023, our return on equity (ROE) was 21.8% compared to 31.5% in the prior year period, and our homebuilding return on inventory (ROI) was 29.0% compared to 39.5%. ROE is calculated as net income attributable to D.R. Horton for the trailing twelve months divided by average stockholders’ equity, where average stockholders’ equity is the sum of ending stockholders’ equity balances of the trailing five quarters divided by five. Homebuilding ROI is calculated as homebuilding pre-tax income for the trailing twelve months divided by average inventory, where average inventory is the sum of ending homebuilding inventory balances for the trailing five quarters divided by five.

Although inflation and mortgage interest rates remain elevated, demand for new homes remained solid during the three months ended December 31, 2023, and our net sales orders increased 35% from the prior year quarter. We are continuing to use incentives and pricing adjustments to adapt to current market conditions. The disruptions in the supply chain for certain building materials and tightness in the labor market we experienced in recent years have largely subsided, and our construction cycle times have improved. Although higher interest rates and economic uncertainty may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable. We believe we are well-positioned to meet changing market conditions with our affordable product offerings and lot supply and will manage our home pricing, sales incentives and number of homes in inventory based on the level of homebuyer demand.

Within our homebuilding land and lot portfolio, our lots controlled through purchase contracts represent 76% of the lots owned and controlled at December 31, 2023 compared to 75% at both September 30, 2023 and December 31, 2022. We remain focused on our relationships with Forestar and other land developers across the country and expect to continue to control a substantial majority of our lot pipeline through purchase contracts.

We believe our strong balance sheet and liquidity position provide us with the flexibility to operate effectively through changing economic conditions. We plan to continue to generate strong cash flows from our homebuilding operations and manage our product offerings, incentives, home pricing, sales pace and inventory levels to optimize the return on our inventory investments in each of our communities based on local housing market conditions.

STRATEGY

Our operating strategy focuses on consistently enhancing long-term value to our shareholders by leveraging our financial and competitive position to maximize the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to navigate changing economic conditions. Our strategy includes the following initiatives:

Developing and retaining highly experienced and productive teams of personnel throughout our company that are aligned and focused on continuous improvement in our operational execution and financial performance.
Maintaining a significant cash balance and strong overall liquidity position while controlling our level of debt.
Allocating and actively managing our inventory investments across our operating markets to diversify our geographic risk.
Offering new home communities that appeal to a broad range of entry-level, move-up, active adult and luxury homebuyers based on consumer demand in each market.
Modifying product offerings, sales pace, home prices and incentives as necessary in each of our markets to meet consumer demand and maintain affordability.
Delivering high quality homes and a positive experience to our customers both during and after the sale.
Managing our inventory of homes under construction relative to demand in each of our markets, including starting construction on unsold homes to capture new home demand and actively controlling the number of unsold, completed homes in inventory.
Investing in lots, land and land development in desirable markets, while controlling the level of land and lots we own in each market relative to the local new home demand.
Controlling a significant portion of our land and finished lot position through purchase contracts with Forestar and other land developers.
Controlling the cost of labor and goods provided by vendors and subcontractors.
Improving the efficiency of our land development, construction, sales and other key operational activities.
Controlling our selling, general and administrative (SG&A) expense infrastructure to match production levels.
Ensuring that our financial services business provides high quality mortgage and title services to homebuyers efficiently and effectively.
Investing in the construction and leasing of single-family and multi-family rental properties to meet rental demand in high growth suburban markets and selling these properties profitably.
Opportunistically evaluating potential acquisitions to enhance our operating platform.

We believe our operating strategy, which has produced positive results in recent years, will allow us to successfully operate through changing economic conditions and maintain our strong financial performance and competitive position. However, we cannot provide any assurances that the initiatives listed above will continue to be successful, and we may need to adjust parts of our strategy to meet future market conditions.

KEY RESULTS

Key financial results as of and for the three months ended December 31, 2023, as compared to the same period of 2022 unless otherwise indicated, were as follows:

Homebuilding:

Homebuilding revenues increased 8% to $7.3 billion compared to $6.7 billion.
Homes closed increased 12% to 19,340 homes, while the average closing price of those homes decreased 3% to $376,200.
Net sales orders increased 35% to 18,069 homes, and the value of net sales orders increased 38% to $6.8 billion.
Sales order backlog decreased 11% to 13,965 homes, and the value of sales order backlog decreased 12% to $5.4 billion.
Home sales gross margin was 22.9% compared to 23.9%.
Homebuilding SG&A expense was 8.3% of homebuilding revenues compared to 7.8%.
Homebuilding pre-tax income was $1.1 billion in both periods.
Homebuilding pre-tax income was 15.0% of homebuilding revenues compared to 16.2%.
Homebuilding cash and cash equivalents totaled $2.5 billion compared to $2.9 billion and $2.0 billion at September 30, 2023 and December 31, 2022, respectively.
Homebuilding inventories totaled $19.4 billion compared to $18.2 billion and $17.7 billion at September 30, 2023 and December 31, 2022, respectively.
Homes in inventory totaled 42,600 compared to 42,000 and 43,200 at September 30, 2023 and December 31, 2022, respectively.
Owned lots totaled 145,000 compared to 141,100 and 136,400 at September 30, 2023 and December 31, 2022, respectively. Lots controlled through purchase contracts totaled 462,200 compared to 427,300 and 414,600 at September 30, 2023 and December 31, 2022, respectively.
Homebuilding debt was $2.4 billion compared to $2.3 billion and $3.0 billion at September 30, 2023 and December 31, 2022, respectively.

Rental:

Rental revenues were $195.3 million compared to $327.5 million.
Rental pre-tax income was $31.3 million compared to $110.3 million.
Rental inventory totaled $3.0 billion compared to $2.7 billion and $2.9 billion at September 30, 2023 and December 31, 2022, respectively.
Multi-family rental units closed totaled 300 in both periods.
Single-family rental homes closed totaled 379 compared to 694.

Forestar:

Forestar’s revenues increased 41% to $305.9 million compared to $216.7 million. Revenues in the current and prior year quarters included $273.5 million and $189.8 million, respectively, of revenue from land and lot sales to our homebuilding segment.
Forestar’s lots sold increased 39% to 3,150 compared to 2,263. Lots sold to D.R. Horton totaled 2,834 compared to 2,094.
Forestar’s pre-tax income increased 84% to $51.2 million compared to $27.9 million.
Forestar’s pre-tax income was 16.7% of revenues compared to 12.9%.
Forestar’s cash and cash equivalents totaled $458.9 million compared to $616.0 million and $216.4 million at September 30, 2023 and December 31, 2022, respectively.
Forestar’s inventories totaled $2.0 billion compared to $1.8 billion and $2.1 billion at September 30, 2023 and December 31, 2022, respectively.
Forestar’s owned and controlled lots totaled 82,400 compared to 79,200 and 82,300 at September 30, 2023 and December 31, 2022, respectively. Of these lots, 33,700 were under contract to sell to or subject to a right of first offer with D.R. Horton compared to 31,400 and 35,000 at September 30, 2023 and December 31, 2022, respectively.
Forestar’s debt was $705.3 million compared to $695.0 million and $706.4 million at September 30, 2023 and December 31, 2022, respectively.
Forestar’s debt to total capital was 33.4% compared to 33.7% and 36.7% at September 30, 2023 and December 31, 2022, respectively. Forestar’s net debt to total capital was 14.9% compared to 5.5% and 28.7% at September 30, 2023 and December 31, 2022, respectively.

Financial Services:

Financial services revenues increased 41% to $192.6 million compared to $137.0 million.
Financial services pre-tax income increased 263% to $66.0 million compared to $18.2 million.
Financial services pre-tax income was 34.3% of financial services revenues compared to 13.3%.

Consolidated Results:

Consolidated revenues increased 6% to $7.7 billion compared to $7.3 billion.
Consolidated pre-tax income decreased 2% to $1.2 billion compared to $1.3 billion.
Consolidated pre-tax income was 16.1% of consolidated revenues compared to 17.5%.
Income tax expense was $291.8 million compared to $298.9 million, and our effective tax rate was 23.4% compared to 23.6%.
Net income attributable to D.R. Horton decreased 1% to $947.4 million compared to $958.7 million.
Diluted net income per common share attributable to D.R. Horton increased 2% to $2.82 compared to $2.76.
Stockholders’ equity was $23.2 billion compared to $22.7 billion and $20.2 billion at September 30, 2023 and December 31, 2022, respectively.
Book value per common share increased to $69.70 compared to $67.78 and $58.71 at September 30, 2023 and December 31, 2022, respectively.
Debt to total capital was 18.6% compared to 18.3% and 22.0% at September 30, 2023 and December 31, 2022, respectively. Net debt to total capital was 7.8% compared to 5.1% and 13.3% at September 30, 2023 and December 31, 2022, respectively.

RESULTS OF OPERATIONS - HOMEBUILDING

We conduct our homebuilding operations in the geographic regions, states and markets listed below. Our homebuilding operating divisions are aggregated into six reporting segments, also referred to as reporting regions, which comprise the markets below. Our financial statements and the notes thereto contain additional information regarding segment performance.


State	Reporting Region/Market	State	Reporting Region/Market	State	Reporting Region/Market

	Northwest Region		Southeast Region		North Region
Colorado	Colorado Springs	Alabama	Baldwin County	Delaware	Northern Delaware
	Denver		Birmingham		Southern Delaware
	Fort Collins		Huntsville	Illinois	Chicago
Oregon	Bend		Mobile	Indiana	Fort Wayne
	Eugene/Springfield		Montgomery		Indianapolis
	Medford		Tuscaloosa		Northwest Indiana
	Portland/Salem	Florida	Fort Myers/Naples	Iowa	Des Moines
Utah	Salt Lake City		Gainesville		Iowa City/Cedar Rapids
	St. George		Jacksonville	Kentucky	Louisville
Washington	Central Washington		Lakeland	Maryland	Baltimore
	Kennewick/Pasco/Richland		Melbourne/Vero Beach		Eastern Maryland
	Seattle/Tacoma/Everett/Olympia		Miami/Fort Lauderdale		Suburban Washington, D.C.
	Spokane		Ocala		Western Maryland
	Vancouver		Orlando	Minnesota	Minneapolis/St. Paul
			Panama City	Nebraska	Omaha
	Southwest Region		Pensacola	New Jersey	Northern New Jersey
Arizona	Phoenix		Port St. Lucie		Southern New Jersey
	Tucson		Tallahassee	Ohio	Cincinnati
California	Bakersfield		Tampa/Sarasota		Columbus
	Bay Area		Volusia County	Pennsylvania	Central Pennsylvania
	Fresno/Tulare	Louisiana	Baton Rouge		Philadelphia
	Los Angeles County		Lake Charles/Lafayette		Pittsburgh
	Modesto/Merced/Stockton	Mississippi	Gulf Coast	Virginia	Northern Virginia
	Redding/Chico/Yuba City		Jackson		Richmond
	Riverside County				Virginia Beach/Williamsburg
	Sacramento		East Region		Western Virginia
	San Bernardino County	Georgia	Atlanta	West Virginia	Eastern West Virginia
Hawaii	Oahu		Augusta
Nevada	Las Vegas		Central Georgia
	Reno		Savannah
New Mexico	Albuquerque		Valdosta
		North Carolina	Asheville
	South Central Region		Charlotte
Arkansas	Northwest Arkansas		Greensboro/Winston-Salem
Oklahoma	Oklahoma City		New Bern/Greenville
	Tulsa		Raleigh/Durham/Fayetteville
Texas	Abilene		Wilmington
	Austin	South Carolina	Charleston
	Beaumont		Columbia
	Bryan/College Station		Greenville/Spartanburg
	Corpus Christi		Hilton Head
	Dallas		Myrtle Beach
	East Texas	Tennessee	Chattanooga
	Fort Worth		Knoxville
	Houston		Memphis
	Killeen/Temple/Waco		Nashville
	Lubbock		Northeast Tennessee
	Midland/Odessa
	New Braunfels/San Marcos
	San Antonio

The following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the three months ended December 31, 2023 and 2022.


	Net Sales Orders (1)
	Three Months Ended December 31,
	Net Homes Sold				Value (In millions)						Average Selling Price
	2023	2022	% Change		2023		2022		% Change		2023		2022		% Change
Northwest	1,179	904	30	%	$	595.8	$	459.8	30	%	$	505,300	$	508,600	(1)	%
Southwest	2,163	1,254	72	%	1,034.9		580.5		78	%	478,500		462,900		3	%
South Central	4,832	3,806	27	%	1,554.7		1,174.1		32	%	321,800		308,500		4	%
Southeast	4,801	3,917	23	%	1,705.1		1,392.5		22	%	355,200		355,500		—	%
East	3,301	2,313	43	%	1,175.2		845.6		39	%	356,000		365,600		(3)	%
North	1,793	1,188	51	%	723.8		470.9		54	%	403,700		396,400		2	%
	18,069	13,382	35	%	$	6,789.5	$	4,923.4	38	%	$	375,800	$	367,900	2	%


	Sales Order Cancellations
	Three Months Ended December 31,
	Cancelled Sales Orders		Value (In millions)				Cancellation Rate (2)
	2023	2022	2023		2022		2023		2022
Northwest	218	238	$	110.5	$	133.4	16	%	21	%
Southwest	411	501	200.2		249.3		16	%	29	%
South Central	1,131	1,707	382.9		602.6		19	%	31	%
Southeast	1,175	1,435	428.5		546.5		20	%	27	%
East	829	648	297.8		248.8		20	%	22	%
North	449	359	183.6		151.8		20	%	23	%
	4,213	4,888	$	1,603.5	$	1,932.4	19	%	27	%

(1)Net sales orders represent the number and dollar value of new sales contracts executed with customers (gross sales orders), net of cancelled sales orders.

(2)Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.

Net Sales Orders

The number of net sales orders increased 35% in the three months ended December 31, 2023 compared to the prior year period, and the value of net sales orders increased 38% to $6.8 billion (18,069 homes) compared to $4.9 billion (13,382 homes), with significant increases in all regions. The average selling price of net sales orders during the three months ended December 31, 2023 was $375,800, up 2% from the prior year period.

The markets contributing most to the increases in sales order volume were: the Salt Lake City and Denver markets in the Northwest; the Phoenix, California and Las Vegas markets in the Southwest; the Dallas market in the South Central; the Florida markets (particularly Tampa) in the Southeast; the Carolina (particularly Raleigh), Knoxville and Atlanta markets in the East; and the Washington, D.C., Ohio, Indiana and Minnesota markets in the North.

Despite continued inflationary pressures and elevated mortgage interest rates, demand for new homes remained solid during the first quarter, and our net sales orders increased 35% from the prior year quarter. We are continuing to use incentives and pricing adjustments to adapt to current market conditions. Although higher interest rates and economic uncertainty may persist for some time, the supply of both new and existing homes at affordable price points remains limited, and demographics supporting housing demand remain favorable. We believe we are well-positioned to meet changing market conditions with our affordable product offerings and lot supply.


	Sales Order Backlog
	As of December 31,
	Homes in Backlog				Value (In millions)						Average Selling Price
	2023	2022	% Change		2023		2022		% Change		2023		2022		% Change
Northwest	592	646	(8)	%	$	300.1	$	366.8	(18)	%	$	506,900	$	567,800	(11)	%
Southwest	1,352	1,307	3	%	664.9		682.8		(3)	%	491,800		522,400		(6)	%
South Central	3,338	4,764	(30)	%	1,117.2		1,620.2		(31)	%	334,700		340,100		(2)	%
Southeast	4,123	5,613	(27)	%	1,588.5		2,185.4		(27)	%	385,300		389,300		(1)	%
East	3,101	2,384	30	%	1,159.7		917.0		26	%	374,000		384,600		(3)	%
North	1,459	1,045	40	%	612.4		447.6		37	%	419,700		428,300		(2)	%
	13,965	15,759	(11)	%	$	5,442.8	$	6,219.8	(12)	%	$	389,700	$	394,700	(1)	%

Sales Order Backlog

Sales order backlog represents homes under contract but not yet closed at the end of the period. Many of the contracts in our sales order backlog are subject to contingencies, including mortgage loan approval and buyers selling their existing homes, which can result in cancellations. A portion of the contracts in backlog will not result in closings due to cancellations.


	Homes Closed and Home Sales Revenue
	Three Months Ended December 31,
	Homes Closed				Value (In millions)						Average Selling Price
	2023	2022	% Change		2023		2022		% Change		2023		2022		% Change
Northwest	1,134	982	15	%	$	573.7	$	520.1	10	%	$	505,900	$	529,600	(4)	%
Southwest	2,218	1,707	30	%	1,051.3		802.7		31	%	474,000		470,200		1	%
South Central	5,121	4,837	6	%	1,664.0		1,636.2		2	%	324,900		338,300		(4)	%
Southeast	5,494	5,287	4	%	1,990.3		1,994.4		—	%	362,300		377,200		(4)	%
East	3,581	3,015	19	%	1,267.9		1,143.4		11	%	354,100		379,200		(7)	%
North	1,792	1,512	19	%	729.2		612.4		19	%	406,900		405,000		—	%
	19,340	17,340	12	%	$	7,276.4	$	6,709.2	8	%	$	376,200	$	386,900	(3)	%

Home Sales Revenue

Revenues from home sales were $7.3 billion (19,340 homes closed) for the three months ended December 31, 2023 compared to $6.7 billion (17,340 homes closed) in the prior year period. The number of homes closed increased 12% in the three months ended December 31, 2023 compared to the prior year period, with increases in all regions. The average selling price of homes closed during the three months ended December 31, 2023 was $376,200, down 3% from the prior year period.

The markets contributing most to the increases in closings volume were: the Salt Lake City market in the Northwest; the California and Las Vegas markets in the Southwest; the Fort Worth market in the South Central; the Alabama markets in the Southeast; the Carolina markets (particularly Myrtle Beach) in the East; and the Washington, D.C. and Ohio markets in the North.


Homebuilding Operating Margin Analysis
	Percentages of Related Revenues
	Three Months Ended December 31,
	2023		2022
Gross profit – home sales	22.9	%	23.9	%
Gross profit – land/lot sales and other	35.0	%	85.9	%
Inventory and land option charges	(0.1)	%	(0.4)	%
Gross profit – total homebuilding	22.9	%	23.8	%
Selling, general and administrative expense	8.3	%	7.8	%
Other (income) expense	(0.4)	%	(0.2)	%
Homebuilding pre-tax income	15.0	%	16.2	%

Home Sales Gross Profit

Gross profit from home sales increased to $1.7 billion in the three months ended December 31, 2023 from $1.6 billion in the prior year period and decreased 100 basis points to 22.9% as a percentage of home sales revenues. The percentage decrease resulted from a decrease of 80 basis points primarily due to a decrease in the value of hedging instruments we use to offer below market interest rate financing to our homebuyers, 20 basis points due to an increase in warranty and construction defect costs and 10 basis points due to an increase in the amount of purchase accounting adjustments related to prior year acquisitions, partially offset by 10 basis points due to a decrease in the amortization of capitalized interest.

We remain focused on managing the pricing, incentives and sales pace in each of our communities to optimize the returns on our inventory investments and adjust to local market conditions and new home demand. To adjust to changes in market conditions during fiscal 2023 and into fiscal 2024, we have increased our use of incentives and reduced home prices and sizes of our home offerings where necessary to provide better affordability to homebuyers. Based on current market conditions, we expect our incentive levels to remain elevated throughout fiscal 2024.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $20.3 million and $34.8 million in the three months ended December 31, 2023 and 2022, respectively.

We continually evaluate our land and lot supply, and fluctuations in revenues and profitability from land sales occur based on how we manage our inventory levels in various markets. We generally purchase land and lots with the intent to build and sell homes on them. However, some of the land that we purchase includes commercially zoned parcels that we may sell to commercial developers. We may also sell residential lots or land parcels to manage our supply or for other strategic reasons. As of December 31, 2023, our homebuilding operations had $3.5 million of land held for sale that we expect to sell in the next twelve months.

Inventory and Land Option Charges

At the end of each quarter, we review the performance and outlook for all of our communities and land inventories for indicators of potential impairment and perform detailed impairment evaluations and analyses when necessary. As a result of this review, there were no impairment charges recorded in our homebuilding segment during the three months ended December 31, 2023 compared to $4.8 million in the prior year quarter.

As we manage our inventory investments across our operating markets to optimize returns and cash flows, we may modify our pricing and incentives, construction and development plans or land sale strategies in individual active communities and land held for development, which could result in the affected communities being evaluated for potential impairment. If the housing market or economic conditions are adversely affected for a prolonged period, we may be required to evaluate additional communities for potential impairment. These evaluations could result in impairment charges, which could be significant.

During the three months ended December 31, 2023, earnest money and pre-acquisition cost write-offs related to our homebuilding segment’s land purchase contracts that we have terminated or expect to terminate were $5.5 million compared to $19.4 million in the same period of fiscal 2023.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 14% to $603.4 million in the three months ended December 31, 2023 from $527.1 million in the prior year period. SG&A expense as a percentage of homebuilding revenues was 8.3% in the three months ended December 31, 2023 compared to 7.8% in the prior year period.

Employee compensation and related costs were $487.3 million in the three months ended December 31, 2023 compared to $425.3 million in the same period of fiscal 2023 and represented 81% of SG&A costs in both periods. These costs increased 15% in the three months ended December 31, 2023 from the prior year period. Our homebuilding operations employed 9,429 and 8,941 people at December 31, 2023 and 2022, respectively.

We attempt to control our homebuilding SG&A costs while ensuring that our infrastructure adequately supports our operations; however, we cannot make assurances that we will be able to maintain or improve upon the current SG&A expense as a percentage of revenues.

Interest Incurred

We capitalize interest costs incurred to inventory during active development and construction (active inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. Interest incurred by our homebuilding operations decreased 45% to $11.4 million in the three months ended December 31, 2023 compared to $20.9 million in the prior year period, primarily due to a 23% decrease in our average homebuilding debt. Interest charged to cost of sales was 0.4% of homebuilding cost of sales (excluding inventory and land option charges) in both periods.

Other Income

Other income, net of other expenses, included in our homebuilding operations increased to $29.5 million in the three months ended December 31, 2023 from $13.3 million in the prior year period, primarily due to an increase in interest income. Other income consists of interest income and various other types of ancillary income, gains, expenses and losses not directly associated with sales of homes, land and lots. The activities that result in this ancillary income are not significant, either individually or in the aggregate.

Homebuilding Results by Reporting Region


	Three Months Ended December 31,
	2023						2022
	Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues
	(In millions)
Northwest	$	577.9	$	69.5	12.0	%	$	520.4	$	58.7	11.3	%
Southwest	1,051.4		134.9		12.8	%	803.0		84.0		10.5	%
South Central	1,669.2		271.6		16.3	%	1,642.1		281.6		17.1	%
Southeast	1,999.6		329.4		16.5	%	1,996.3		411.3		20.6	%
East	1,268.3		204.6		16.1	%	1,143.9		189.4		16.6	%
North	730.3		86.1		11.8	%	638.3		69.4		10.9	%
	$	7,296.7	$	1,096.1	15.0	%	$	6,744.0	$	1,094.4	16.2	%

(1)Expenses maintained at the corporate level consist primarily of interest and property taxes, which are capitalized and amortized to cost of sales or expensed directly, and the expenses related to operating our corporate office. The amortization of capitalized interest and property taxes is allocated to each segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each segment based on the segment’s inventory balances.

Northwest Region — Homebuilding revenues increased 11% in the three months ended December 31, 2023 compared to the prior year period due to increases in the number of homes closed, particularly in our Salt Lake City market. The region generated pre-tax income of $69.5 million in the three months ended December 31, 2023 compared to $58.7 million in the prior year period. Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 60 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing by more than the average selling price of those homes. As a percentage of homebuilding revenues, SG&A expenses increased by 10 basis points in the three months ended December 31, 2023 compared to the prior year period.

Southwest Region — Homebuilding revenues increased 31% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our California and Las Vegas markets. The region generated pre-tax income of $134.9 million in the three months ended December 31, 2023 compared to $84.0 million in the prior year period. Home sales gross profit percentage increased by 10 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to a slight increase in the average selling price of homes closed. As a percentage of homebuilding revenues, SG&A expenses decreased by 150 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 2% in the three months ended December 31, 2023 compared to the prior year period. The region generated pre-tax income of $271.6 million in the three months ended December 31, 2023 compared to $281.6 million in the prior year period. Home sales gross profit percentage decreased by 70 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average selling price of homes closed decreasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses increased 50 basis points in the three months ended December 31, 2023 compared to the prior year period.

Southeast Region — Homebuilding revenues were flat in the three months ended December 31, 2023 compared to the prior year period. The region generated pre-tax income of $329.4 million in the three months ended December 31, 2023 compared to $411.3 million in the prior year period. Home sales gross profit percentage decreased by 360 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed increasing while the average selling price of those homes decreased. As a percentage of homebuilding revenues, SG&A expenses increased by 90 basis points in the three months ended December 31, 2023 compared to the prior year period.

East Region — Homebuilding revenues increased 11% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our Carolina markets. The region generated pre-tax income of $204.6 million in the three months ended December 31, 2023 compared to $189.4 million in the prior year period. Home sales gross profit percentage increased by 40 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing by more than the average selling price of those homes. As a percentage of homebuilding revenues, SG&A expenses increased by 90 basis points in the three months ended December 31, 2023 compared to the prior year period.

North Region — Homebuilding revenues increased 14% in the three months ended December 31, 2023 compared to the prior year period, primarily due to increases in the number of homes closed, particularly in our Washington, D.C. and Ohio markets. The region generated pre-tax income of $86.1 million in the three months ended December 31, 2023 compared to $69.4 million in the prior year period. Home sales gross profit percentage increased by 300 basis points in the three months ended December 31, 2023 compared to the prior year period, primarily due to the average cost of homes closed decreasing, while the average selling price of those homes increased. As a percentage of homebuilding revenues, SG&A expenses increased by 50 basis points in the three months ended December 31, 2023 compared to the prior year period.

HOMEBUILDING INVENTORIES, LAND AND LOT POSITION AND HOMES IN INVENTORY

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

Our homebuilding segment’s inventories at December 31, 2023 and September 30, 2023 are summarized as follows:


	December 31, 2023
	Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory
	(In millions)
Northwest	$	902.5	$	1,087.0	$	—	$	0.5	$	1,990.0
Southwest	1,352.2		1,951.5		6.8		0.9		3,311.4
South Central	2,005.4		1,943.9		0.3		1.0		3,950.6
Southeast	2,479.2		1,694.3		13.0		—		4,186.5
East	1,518.0		1,848.4		—		1.0		3,367.4
North	1,213.3		1,088.9		—		0.1		2,302.3
Corporate and unallocated (1)	131.9		126.5		0.3		—		258.7
	$	9,602.5	$	9,740.5	$	20.4	$	3.5	$	19,366.9


	September 30, 2023
	Construction in Progress and Finished Homes		Residential Land/Lots Developed and Under Development		Land Held for Development		Land Held for Sale		Total Inventory
	(In millions)
Northwest	$	819.5	$	1,087.5	$	—	$	0.5	$	1,907.5
Southwest	1,280.0		1,845.0		6.7		1.3		3,133.0
South Central	2,040.2		1,769.6		0.3		0.4		3,810.5
Southeast	2,390.5		1,549.8		13.2		5.0		3,958.5
East	1,393.5		1,630.4		—		0.8		3,024.7
North	1,083.7		993.7		—		0.6		2,078.0
Corporate and unallocated (1)	126.9		116.3		0.3		0.1		243.6
	$	9,134.3	$	8,992.3	$	20.5	$	8.7	$	18,155.8

(1)Corporate and unallocated inventory consists primarily of capitalized interest and property taxes.

Our land and lot position and homes in inventory at December 31, 2023 and September 30, 2023 are summarized as follows:


	December 31, 2023
	Land/Lots Owned (1)		Lots Controlled Through Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
Northwest	13,400		21,900		35,300		3,100
Southwest	22,800		29,000		51,800		4,700
South Central	37,100		95,600		132,700		10,500
Southeast	26,700		135,900		162,600		11,700
East	29,700		123,600		153,300		7,600
North	15,300		56,200		71,500		5,000
	145,000		462,200		607,200		42,600
	24	%	76	%	100	%


	September 30, 2023
	Land/Lots Owned (1)		Lots Controlled Through Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
Northwest	14,100		20,300		34,400		2,800
Southwest	22,600		30,500		53,100		4,700
South Central	36,700		69,500		106,200		10,800
Southeast	24,700		132,900		157,600		12,100
East	27,700		118,400		146,100		7,100
North	15,300		55,700		71,000		4,500
	141,100		427,300		568,400		42,000
	25	%	75	%	100	%

(1)Land/lots owned included approximately 55,600 and 50,300 owned lots that are fully developed and ready for home construction at December 31, 2023 and September 30, 2023, respectively.

(2)The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2023 and September 30, 2023 was $22.5 billion and $21.1 billion, respectively, secured by earnest money deposits of $1.9 billion and $1.8 billion, respectively. The total remaining purchase price of lots controlled through land and lot purchase contracts at December 31, 2023 and September 30, 2023 included $1.5 billion and $1.3 billion, respectively, related to lot purchase contracts with Forestar, secured by $161.7 million and $139.1 million, respectively, of earnest money.

(3)Lots controlled at December 31, 2023 included approximately 33,700 lots owned or controlled by Forestar, 16,200 of which our homebuilding divisions had under contract to purchase and 17,500 of which our homebuilding divisions had a right of first offer to purchase. Of these, approximately 12,800 lots were in our Southeast region, 5,700 lots were in our East region, 5,100 lots were in our South Central region, 4,400 lots were in our North region, 3,800 lots were in our Southwest region and 1,900 lots were in our Northwest region. Lots controlled at September 30, 2023 included approximately 31,400 lots owned or controlled by Forestar, 14,400 of which our homebuilding divisions had under contract to purchase and 17,000 of which our homebuilding divisions had a right of first offer to purchase.

(4)Approximately 28,800 and 27,000 of our homes in inventory were unsold at December 31, 2023 and September 30, 2023, respectively. At December 31, 2023, approximately 9,000 of our unsold homes were completed, of which approximately 730 homes had been completed for more than six months. At September 30, 2023, approximately 7,000 of our unsold homes were completed, of which approximately 620 homes had been completed for more than six months. Homes in inventory exclude approximately 2,200 and 2,100 model homes at December 31, 2023 and September 30, 2023, respectively.

RESULTS OF OPERATIONS - RENTAL

Our rental segment consists of single-family and multi-family rental operations. The single-family rental operations primarily construct and lease single-family homes within a community and then market each community for a bulk sale of rental homes. The multi-family rental operations develop, construct, lease and sell residential rental properties, with a primary focus on constructing garden style apartment communities in high growth suburban markets. Single-family and multi-family rental property sales are recognized as revenues, and rental income is recognized as other income. The following tables provide further information regarding our rental operations as of and for the three months ended December 31, 2023 and 2022.


	Rental Homes/Units Closed
	Three Months Ended December 31,
	2023	2022
Single-family rental homes	379	694
Multi-family rental units	300	300
	679	994


	Results of Operations
	(In millions)
Revenues
Single-family rental	$	116.1	$	228.0
Multi-family rental and other	79.2		99.5
Total revenues	195.3		327.5
Cost of sales
Single-family rental	87.2		136.8
Multi-family rental and other	54.5		47.0
Inventory and land option charges	—		0.9
Total cost of sales	141.7		184.7
Selling, general and administrative expense	47.4		47.5
Other (income) expense	(25.1)		(15.0)
Income before income taxes	$	31.3	$	110.3

Revenues from our rental operations decreased to $195.3 million during the three months ended December 31, 2023 from $327.5 million in the prior year period, and pre-tax income decreased to $31.3 million from $110.3 million. The decreases were primarily due to fewer rental home and unit closings during the three months ended December 31, 2023 compared to the prior year period.

At December 31, 2023, our rental property inventory of $3.0 billion included $1.4 billion of inventory related to our single-family rental operations and $1.6 billion of inventory related to our multi-family rental operations. At September 30, 2023, our rental property inventory of $2.7 billion included $1.3 billion of inventory related to our single-family rental operations and $1.4 billion of inventory related to our multi-family rental operations. Single-family rental homes and lots and multi-family rental units at December 31, 2023 and September 30, 2023 consisted of the following:


	Rental Inventory
	December 31, 2023	September 30, 2023
Single-family rental homes (1)	5,820	5,630
Single-family rental lots (2)	2,980	3,380
Multi-family rental units (3)	10,200	9,150

(1)Single-family rental homes at December 31, 2023 consist of 900 homes under construction and 4,920 completed homes. Single-family rental homes at September 30, 2023 consist of 1,260 homes under construction and 4,370 completed homes.

(2)Single-family rental lots at December 31, 2023 consist of 1,935 undeveloped lots and 1,045 finished lots. Single-family rental lots at September 30, 2023 consist of 2,210 undeveloped lots and 1,170 finished lots.

(3)Multi-family rental units at December 31, 2023 consist of 8,070 units under construction and 2,130 units that were substantially complete and in the lease-up phase. Multi-family rental units at September 30, 2023 consist of 7,200 units under construction and 1,950 units that were substantially complete and in the lease-up phase.

RESULTS OF OPERATIONS – FORESTAR

At December 31, 2023, we owned 63% of the outstanding shares of Forestar. Forestar is a publicly traded residential lot development company with operations in 57 markets across 23 states as of December 31, 2023. (See Note B to the accompanying financial statements for additional Forestar segment information.)

Results of operations for the Forestar segment for the three months ended December 31, 2023 and 2022 were as follows:


	Three Months Ended December 31,
	2023		2022
	(In millions)
Total revenues	$	305.9	$	216.7
Cost of land/lot sales and other	232.8		166.8
Inventory and land option charges	0.2		2.4
Total cost of sales	233.0		169.2
Selling, general and administrative expense	28.0		22.9
Other (income) expense	(6.3)		(3.3)
Income before income taxes	$	51.2	$	27.9

Forestar’s revenues are primarily derived from sales of single-family residential lots to local, regional and national homebuilders and land bankers for homebuilders. The following tables provide further information regarding Forestar’s revenues and lot position as of and for the three months ended December 31, 2023 and 2022:


	Three Months Ended December 31,
	Lots Sold		Value (In millions)
	2023	2022	2023		2022
Residential single-family lots sold
Lots sold to D.R. Horton	2,834	2,094	$	273.5	$	189.8
Total lots sold	3,150	2,263	$	304.2	$	206.7


	December 31, 2023	September 30, 2023
Residential single-family lots in inventory and under contract
Lots owned	55,400	52,400
Lots controlled through land purchase contracts	27,000	26,800
Total lots owned and controlled	82,400	79,200

Owned lots under contract to sell to D.R. Horton	16,200	14,400
Owned lots under contract to customers other than D.R. Horton	500	600
Total owned lots under contract	16,700	15,000

Owned lots subject to right of first offer with D.R. Horton	17,500	17,000
Owned lots fully developed	7,300	6,400

At December 31, 2023 and September 30, 2023, Forestar’s inventory, which includes land and lots developed, under development and held for development, totaled $2.0 billion and $1.8 billion, respectively.

SG&A expense for the three months ended December 31, 2023 and 2022 included charges of $1.3 million and $0.9 million, respectively, related to the shared services agreement between Forestar and D.R. Horton whereby D.R. Horton provides Forestar with certain administrative, compliance, operational and procurement services.

RESULTS OF OPERATIONS – FINANCIAL SERVICES

The following tables and related discussion set forth key operating and financial data for our financial services operations, comprising DHI Mortgage and our subsidiary title companies, for the three months ended December 31, 2023 and 2022.


	Three Months Ended December 31,
	2023		2022		% Change
Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	15,117		13,296		14	%
Number of homes closed by D.R. Horton	19,340		17,340		12	%
Percentage of D.R. Horton homes financed by DHI Mortgage	78	%	77	%
Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	15,131		13,300		14	%
Total number of loans originated or brokered by DHI Mortgage	15,200		13,399		13	%
Captive business percentage	99.5	%	99.3	%
Loans sold by DHI Mortgage to third parties	16,927		15,167		12	%


	Three Months Ended December 31,
	2023		2022		% Change
	(In millions)
Loan origination and other fees	$	18.2	$	15.3	19	%
Gains on sale of mortgage loans and mortgage servicing rights	128.7		79.2		63	%
Servicing income	1.2		1.2		—	%
Total mortgage operations revenues	148.1		95.7		55	%
Title policy premiums	44.5		41.3		8	%
Total revenues	192.6		137.0		41	%
General and administrative expense	151.5		134.1		13	%
Other (income) expense	(24.9)		(15.3)		63	%
Financial services pre-tax income	$	66.0	$	18.2	263	%

Financial Services Operating Margin Analysis


	Percentages of Financial Services Revenues
	Three Months Ended December 31,
	2023		2022
General and administrative expense	78.7	%	97.9	%
Other (income) expense	(12.9)	%	(11.2)	%
Financial services pre-tax income	34.3	%	13.3	%

Mortgage Loan Activity

DHI Mortgage’s primary focus is to originate loans for our homebuilding operations, and those loan originations account for almost all of its total loan volume. In the three months ended December 31, 2023, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 14%, primarily due to a 12% increase in the number of homes closed by our homebuilding operations. The percentage of homes closed for which DHI Mortgage handled our homebuyers’ financing was 78% in the three months ended December 31, 2023, up from 77% in the prior year period.

The number of loans sold increased 12% in the three months ended December 31, 2023 compared to the prior year period. Virtually all of the mortgage loans held for sale on December 31, 2023 were eligible for sale to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae). During the three months ended December 31, 2023, approximately 71% of our mortgage loans were sold directly to Fannie Mae, Freddie Mac or into securities backed by Ginnie Mae, and 28% were sold to one other major financial entity. Changes in market conditions could result in a greater concentration of our mortgage sales in future periods to fewer financial entities and directly to Fannie Mae, Freddie Mac or Ginnie Mae, and we may need to make other adjustments to our mortgage operations.

Financial Services Revenues and Expenses

Total loan origination volume increased 13% in the three months ended December 31, 2023, and revenues from our mortgage operations increased 55% to $148.1 million from $95.7 million in the prior year period. The increase in revenues was primarily due to higher gains on sales of mortgages resulting from improved loan sale execution in the secondary market. Revenues from our title operations increased 8% to $44.5 million in the three months ended December 31, 2023 from $41.3 million in the prior year period.

General and administrative (G&A) expense related to our financial services operations increased 13% to $151.5 million in the three months ended December 31, 2023 from $134.1 million in the prior year period. The increase was primarily due to the increase in loan origination volume and related title closing services. As a percentage of financial services revenues, G&A expense was 78.7% in the three months ended December 31, 2023 compared to 97.9% in the prior year period. Fluctuations in financial services G&A expense as a percentage of revenues can occur because some components of revenue fluctuate differently than loan volumes, and some expenses are not directly related to mortgage loan volume or to changes in the amount of revenue earned. Our financial services operations employed 2,978 and 2,897 people at December 31, 2023 and 2022, respectively.

Other income, net of other expense, included in our financial services operations consists primarily of the interest income of our mortgage subsidiary. Other income increased 63% to $24.9 million in the three months ended December 31, 2023 from $15.3 million in the prior year period, primarily due to an increase in interest rates on our loan origination volume.

RESULTS OF OPERATIONS - OTHER BUSINESSES

In addition to our homebuilding, rental, Forestar and financial services operations, we engage in other business activities through our subsidiaries. We conduct insurance-related operations, own water rights and other water-related assets and own non-residential real estate including ranch land and improvements. The pre-tax income of all of our subsidiaries engaged in other business activities was $9.9 million in the three months ended December 31, 2023 compared to $9.4 million in the prior year period.

RESULTS OF OPERATIONS - CONSOLIDATED

Income before Income Taxes

Pre-tax income for the three months ended December 31, 2023 was $1.2 billion compared to $1.3 billion in the prior year period. The decrease was primarily due to a decrease in the pre-tax income of our rental operations, which had fewer home and unit closings compared to the prior year period.

Income Taxes

Our income tax expense for the three months ended December 31, 2023 was $291.8 million compared to $298.9 million in the prior year period. Our effective tax rate was 23.4% for the three months ended December 31, 2023 compared to 23.6% 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 federal energy efficient homes tax credits.

Our deferred tax assets, net of deferred tax liabilities, were $190.7 million at December 31, 2023 compared to $202.0 million at September 30, 2023. We have a valuation allowance of $14.8 million at December 31, 2023 and September 30, 2023 related to deferred tax assets for state net operating loss (NOL) and tax credit carryforwards that are expected to expire before being realized. We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance with respect to our remaining state NOL and tax credit carryforwards. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

CAPITAL RESOURCES AND LIQUIDITY

We have historically funded our operations with cash flows from operating activities, borrowings under bank credit facilities and the issuance of new debt securities. Our current levels of cash, borrowing capacity and balance sheet leverage provide us with the operational flexibility to adjust to changes in economic and market conditions.

We have continued to increase our investments in our homebuilding and rental inventories to expand our operations. We are also returning capital to our shareholders through dividend payments and repurchases of our common stock. We are maintaining significant homebuilding cash balances and liquidity to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

At December 31, 2023, we had outstanding notes payable with varying maturities totaling an aggregate principal amount of $5.3 billion. $2.0 billion is payable within 12 months, including $1.3 billion which is outstanding under our mortgage repurchase facilities. At December 31, 2023, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 18.6% compared to 18.3% at September 30, 2023 and 22.0% at December 31, 2022. Our net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 7.8% at December 31, 2023 compared to 5.1% at September 30, 2023 and 13.3% at December 31, 2022. Over the long term, we intend to maintain our ratio of debt to total capital below 25%, and we expect it to remain below 20% throughout fiscal 2024.

At December 31, 2023, we had outstanding letters of credit of $253.9 million and surety bonds of $3.2 billion, issued by third parties to secure performance under various contracts. We expect that our performance obligations secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in accordance with the applicable contractual terms. When we complete our performance obligations, the related letters of credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations. We have no material third-party guarantees.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, pay dividends, repurchase our common stock and maintain sufficient cash and liquidity levels to support our other operational needs, and we regularly evaluate our opportunities to raise additional capital. D.R. Horton has an automatically effective universal shelf registration statement filed with the Securities and Exchange Commission (SEC) in July 2021, registering debt and equity securities that may be issued from time to time in amounts to be determined. Forestar also has an effective shelf registration statement filed with the SEC in October 2021, registering $750 million of equity securities, of which $300 million was reserved for sales under its at-the-market equity offering (ATM) program that became effective in November 2021. At December 31, 2023, $748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $298.2 million was reserved for sales under its ATM program. As market conditions permit, we may issue new debt or equity securities through the capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity. We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facilities and ability to access the capital markets or obtain additional bank financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations for the next 12 months and for the foreseeable future thereafter.

Capital Resources - Homebuilding

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our homebuilding segment totaled $2.5 billion.

Bank Credit Facility — We have a $2.19 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $3.0 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the total revolving credit commitments. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is October 28, 2027. At December 31, 2023, there were no borrowings outstanding and $229.6 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $1.96 billion.

Our homebuilding revolving credit facility imposes restrictions on our operations and activities, including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. The credit agreement governing the facility imposes restrictions on the creation of secured debt and liens. At December 31, 2023, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facility.

Public Unsecured Debt — At December 31, 2023, we had $2.1 billion principal amount of homebuilding senior notes outstanding that mature from October 2024 through October 2027.

The indentures governing our senior notes impose restrictions on the creation of secured debt and liens. At December 31, 2023, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

Our homebuilding revolving credit facility and homebuilding senior notes are guaranteed by D.R. Horton, Inc.’s significant wholly-owned homebuilding subsidiaries.

Debt and Stock Repurchase Authorizations — In July 2019, our Board of Directors authorized the repurchase of up to $500 million of debt securities. Effective October 31, 2023, our Board of Directors authorized the repurchase of up to $1.5 billion of our common stock, replacing the previous authorization that was effective as of April 18, 2023. During the three months ended December 31, 2023, we repurchased 3.3 million shares at a total cost, including commissions and excise taxes, of $398.3 million, of which $201.6 million was repurchased under the previous authorization. At December 31, 2023, the full amount of the debt repurchase authorization was remaining, and $1.3 billion of the stock repurchase authorization was remaining. The debt and stock repurchase authorizations have no expiration date.

Capital Resources - Rental

During the past few years, we have made significant investments in our rental operations. The inventory in our rental segment totaled $3.0 billion at December 31, 2023 compared to $2.7 billion at September 30, 2023 and $2.9 billion at December 31, 2022.

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our rental segment totaled $117.7 million.

Bank Credit Facility — Our rental subsidiary, DRH Rental, has a $1.05 billion senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.0 billion, subject to certain conditions and availability of additional bank commitments. Availability under the rental revolving credit facility is subject to a borrowing base calculation based on the book value of DRH Rental’s real estate assets and unrestricted cash. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. The maturity date of the facility is October 10, 2027. Borrowings and repayments under the facility totaled $720 million and $170 million, respectively, during the three months ended December 31, 2023. At December 31, 2023, there were $950 million of borrowings outstanding at a 7.2% annual interest rate and no letters of credit issued under the facility, resulting in available capacity of $100 million.

The rental revolving credit facility includes customary affirmative and negative covenants, events of default and financial covenants. The financial covenants require DRH Rental to maintain a minimum level of tangible net worth, a minimum level of liquidity and a maximum allowable leverage ratio. These covenants are measured as defined in the credit agreement governing the facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity. At December 31, 2023, DRH Rental was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility.

The rental revolving credit facility is guaranteed by DRH Rental’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries. The rental revolving credit facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, Forestar or financial services operations.

Capital Resources - Forestar

The achievement of Forestar’s long-term growth objectives will depend on its ability to obtain financing and generate sufficient cash flows from operations. As market conditions permit, Forestar may issue new debt or equity securities through the capital markets or obtain additional bank financing to provide capital for future growth and additional liquidity. At December 31, 2023, Forestar’s ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 33.4% compared to 33.7% at September 30, 2023 and 36.7% at December 31, 2022. Forestar’s ratio of net debt to total capital (notes payable net of cash divided by stockholders’ equity plus notes payable net of cash) was 14.9% compared to 5.5% at September 30, 2023 and 28.7% at December 31, 2022.

Cash and Cash Equivalents — At December 31, 2023, Forestar had cash and cash equivalents of $458.9 million.

Bank Credit Facility — Forestar has a $410 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $600 million, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the total revolving credit commitments. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on the book value of Forestar’s real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. The maturity date of the facility is October 28, 2026. At December 31, 2023, there were no borrowings outstanding and $24.3 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $385.7 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.

Unsecured Debt — As of December 31, 2023, Forestar had $700 million principal amount of senior notes issued pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, which represent unsecured obligations of Forestar. These notes include $400 million principal amount of 3.85% senior notes that mature in May 2026 and $300 million principal amount of 5.0% senior notes that mature in March 2028.

At December 31, 2023, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

Forestar’s revolving credit facility and its senior notes are guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries. They are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, rental or financial services operations.

Debt Repurchase Authorization — In April 2020, Forestar’s Board of Directors authorized the repurchase of up to $30 million of Forestar’s debt securities. All of the $30 million authorization was remaining at December 31, 2023, and the authorization has no expiration date.

Issuance of Common Stock — During the three months ended December 31, 2023, there were no shares of common stock issued under Forestar’s ATM program. At December 31, 2023, $748.2 million remained available for issuance under Forestar’s shelf registration statement, of which $298.2 million was reserved for sales under its ATM program.

Capital Resources - Financial Services

Cash and Cash Equivalents — At December 31, 2023, cash and cash equivalents of our financial services segment totaled $226.9 million.

Mortgage Repurchase Facilities — Our mortgage subsidiary, DHI Mortgage, has two mortgage repurchase facilities, one of which is committed and the other of which is uncommitted, that provide financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to 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 in accordance with the terms of the mortgage repurchase facilities.

The committed mortgage repurchase facility has a total capacity of $2.0 billion and a maturity date of February 16, 2024. The capacity of the committed mortgage repurchase facility can be increased to $2.3 billion subject to the availability of additional commitments. At December 31, 2023, DHI Mortgage had an obligation of $1.2 billion under the committed mortgage repurchase facility at a 7.0% annual interest rate.

At December 31, 2023, the uncommitted mortgage repurchase facility had a borrowing capacity of $300 million, of which DHI Mortgage had an obligation of $119 million at a 6.6% annual interest rate.

At December 31, 2023, $1.82 billion of mortgage loans held for sale with a collateral value of $1.79 billion were pledged under the committed mortgage repurchase facility, and $127.3 million of mortgage loans held for sale with a collateral value of $121.5 million were pledged under the uncommitted mortgage repurchase facility.

The facilities contain financial covenants as to the mortgage subsidiary’s minimum required tangible net worth, its maximum allowable indebtedness to tangible net worth ratio and its minimum required liquidity. At December 31, 2023, DHI Mortgage was in compliance with all of the conditions and covenants of the mortgage repurchase facilities.

These mortgage repurchase facilities are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee the debt of our homebuilding, rental or Forestar operations.

In the past, DHI Mortgage has been able to renew or extend its committed mortgage repurchase facility at a sufficient capacity and on satisfactory terms prior to its maturity and obtain temporary additional commitments through amendments to the facility during periods of higher than normal volumes of mortgages held for sale. The liquidity of our financial services business depends upon its continued ability to renew and extend the committed mortgage repurchase facility or to obtain other additional financing in sufficient capacities.

Operating Cash Flow Activities

In the three months ended December 31, 2023, net cash used in operating activities was $153.4 million compared to $829.1 million of cash provided by operating activities in the prior year period. Cash used in operating activities in the current year period primarily consisted of $516.2 million and $156.7 million of cash used in our rental and Forestar segments, respectively, partially offset by $464.7 million and $31.2 million of cash provided by our financial services and homebuilding segments, respectively.

Cash used to increase construction in progress and finished home inventory was $466.4 million in the current year period, reflecting an increase in our completed homes in inventory in the current period. Cash used to increase residential land and lots was $937.8 million in the current year period compared to $637.5 million in the prior year period.

Investing Cash Flow Activities

In the three months ended December 31, 2023, net cash used in investing activities was $39.3 million compared to $142.9 million in the prior year period. In the current year period, uses of cash included purchases of property and equipment totaling $47.6 million. In the prior year period, uses of cash included the acquisition of the homebuilding operations of Riggins Custom Homes for $107.0 million, of which $97.1 million was paid in the period, and purchases of property and equipment totaling $47.5 million.

Financing Cash Flow Activities

We expect the short-term financing needs of our operations will be funded with existing cash, cash generated from operations and borrowings under our credit facilities. Long-term financing needs for our operations may be funded with the issuance of senior unsecured debt securities or equity securities through the capital markets.

During the three months ended December 31, 2023, net cash used in financing activities was $362.8 million, consisting primarily of net payments on our mortgage repurchase facilities of $389.9 million, cash used to repurchase shares of our common stock of $376.9 million and payment of cash dividends totaling $99.9 million. These uses of cash were partially offset by net borrowings on our rental revolving credit facility of $550 million.

During the three months ended December 31, 2022, net cash used in financing activities was $646.6 million, consisting primarily of net payments on our mortgage repurchase facility of $404.4 million, cash used to repurchase shares of our common stock of $118.1 million and payment of cash dividends totaling $86.1 million.

During the three months ended December 31, 2023, our Board of Directors approved a quarterly cash dividend of $0.30 per common share, which was paid on November 28, 2023 to stockholders of record on November 21, 2023. In January 2024, our Board of Directors approved a quarterly cash dividend of $0.30 per common share, payable on February 13, 2024 to stockholders of record on February 6, 2024. Cash dividends of $0.25 per common share were approved and paid in each quarter of fiscal 2023. The declaration of future cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, cash flows, capital requirements, financial condition and general business conditions.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

As of December 31, 2023, D.R. Horton, Inc. had $2.1 billion principal amount of homebuilding senior notes outstanding due through October 2027 and no amounts outstanding on its homebuilding revolving credit facility.

All of the homebuilding senior notes and the homebuilding revolving credit facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of D.R. Horton, Inc. (Guarantors or Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by D.R. Horton, Inc. Our subsidiaries associated with the single-family and multi-family rental operations, Forestar lot development operations, financial services operations and certain other subsidiaries do not guarantee the homebuilding senior notes or the homebuilding revolving credit facility (collectively, Non-Guarantor Subsidiaries). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt. The guarantees will be structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries of the Guarantors.

The guarantees by a Guarantor Subsidiary will be automatically and unconditionally released and discharged upon: (1) the sale or other disposition of its common stock whereby it is no longer a subsidiary of ours; (2) the sale or other disposition of all or substantially all of its assets (other than to us or another Guarantor); (3) its merger or consolidation with an entity other than us or another Guarantor; or (4) its ceasing to guarantee any of our publicly traded debt securities and ceasing to guarantee any of our obligations under our homebuilding revolving credit facility.

The enforceability of the obligations of the Guarantor Subsidiaries under their guarantees may be subject to review under applicable federal or state laws relating to fraudulent conveyance or transfer, voidable preference and similar laws affecting the rights of creditors generally. In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of our guaranteed obligations. The indentures governing our homebuilding senior notes contain a “savings clause,” which limits the liability of each Guarantor on its guarantee to the maximum amount that such Guarantor can incur without risk that its guarantee will be subject to avoidance as a fraudulent transfer. This provision may not be effective to protect such guarantees from fraudulent transfer challenges or, if it does, it may reduce such Guarantor’s obligation such that the remaining amount due and collectible under the guarantees would not suffice, if necessary, to pay the notes in full when due.

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


D.R. Horton, Inc. and Guarantor Subsidiaries

Summarized Balance Sheet Data	December 31, 2023		September 30, 2023
	(In millions)
Assets
Cash	$	2,432.7	$	2,848.3
Inventories	19,463.2		18,331.6
Amount due from Non-Guarantor Subsidiaries	1,497.9		1,314.3
Total assets	26,828.3		26,081.4
Liabilities & Stockholders’ Equity
Notes payable	$	2,224.6	$	2,211.1
Total liabilities	5,952.2		5,785.4
Stockholders’ equity	20,876.1		20,296.0

Summarized Statement of Operations Data	Three Months Ended December 31, 2023		Year Ended September 30, 2023
	(In millions)
Revenues	$	7,258.7	$	31,661.8
Cost of sales	5,595.7		24,264.9
Selling, general and administrative expense	592.9		2,192.0
Income before income taxes	1,090.0		5,245.5
Net income	836.1		3,984.2

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As disclosed in our annual report on Form 10-K for the fiscal year ended September 30, 2023, our most critical accounting policies relate to revenue recognition, inventories and cost of sales, warranty and legal claims and insurance. Since September 30, 2023, there have been no significant changes to those critical accounting policies.

As disclosed in our critical accounting policies in our Form 10-K for the fiscal year ended September 30, 2023, our reserves for construction defect claims include the estimated costs of both known claims and anticipated future claims. At December 31, 2023 and September 30, 2023, we had reserves for approximately 565 and 600 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the three months ended December 31, 2023, we were notified of approximately 85 new construction defect claims and resolved 120 construction defect claims for a total cost of $34.9 million. At December 31, 2022 and September 30, 2022, we had reserves for approximately 570 and 560 pending construction defect claims, respectively, and no individual existing claim was material to our financial statements. During the three months ended December 31, 2022, we were notified of approximately 60 new construction defect claims and resolved 50 construction defect claims for a total cost of $4.6 million.

SEASONALITY

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again in the future, we generally close more homes and generate greater revenues and pre-tax income in the third and fourth quarters of our fiscal year. The seasonal nature of our business can also cause significant variations in the working capital requirements for our homebuilding, rental, lot development and financial services operations. As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular fiscal quarter are not necessarily representative of the balance of our fiscal year.

Forward-Looking Statements

Some of the statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management. These forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,” “projection,” “seek,” “should,” “strategy,” “target,” “will,” “would” or other words of similar meaning. Any or all of the forward-looking statements included in this report and in any other of our reports or public statements may not approximate actual experience, and the expectations derived from them may not be realized, due to risks, uncertainties and other factors. As a result, actual results may differ materially from the expectations or results we discuss in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

the cyclical nature of the homebuilding, rental and lot development industries and changes in economic, real estate or other conditions;
adverse developments affecting the capital markets and financial institutions, which could limit our ability to access capital and increase our cost of capital and impact our liquidity and capital resources;
reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates;
the risks associated with our land, lot and rental inventory;
our ability to effect our growth strategies, acquisitions, investments or other strategic initiatives successfully;
the impact of an inflationary, deflationary or higher interest rate environment;
supply shortages and other risks of acquiring land, building materials and skilled labor and obtaining regulatory approvals;
the effects of public health issues such as a major epidemic or pandemic on the economy and our businesses;
the effects of weather conditions and natural disasters on our business and financial results;
home warranty and construction defect claims;
the effects of health and safety incidents;
reductions in the availability of performance bonds;
increases in the costs of owning a home;
the effects of information technology failures, data security breaches, and the failure to satisfy privacy and data protection laws and regulations;
the effects of governmental regulations and environmental matters on our homebuilding and land development operations;
the effects of governmental regulations on our financial services operations;
competitive conditions within the industries in which we operate;
our ability to manage and service our debt and comply with related debt covenants, restrictions and limitations;
the effects of negative publicity;
the effects of the loss of key personnel; and
actions by activist stockholders.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained in our annual report on Form 10-K for the fiscal year ended September 30, 2023, including the section entitled “Risk Factors,” which is filed with the SEC.

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