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 84 markets in 29 states across the United States. The Company’s operating segments are its 51 homebuilding divisions, its majority-owned Forestar residential lot development operations, its financial services operations and its other business activities. The Company’s reporting segments are its homebuilding reporting segments, its Forestar land development segment and its financial services segment. The homebuilding operating segments are aggregated into the following six reporting segments: East, Midwest, Southeast, South Central, Southwest and West. These reporting segments have homebuilding operations located in the following states:



	East:		Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina and Virginia
	Midwest:		Colorado, Illinois, Indiana, Iowa, Minnesota and Ohio
	Southeast:		Alabama, Florida, Georgia, Mississippi and Tennessee
	South Central:		Louisiana, Oklahoma and Texas
	Southwest:		Arizona and New Mexico
	West:		California, Hawaii, Nevada, Oregon, Utah and Washington

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.

The Forestar segment is a residential lot development company with operations in 41 markets and 17 states. The Company’s homebuilding divisions and Forestar are identifying land development opportunities to expand Forestar’s platform, and the homebuilding divisions are acquiring 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.

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.

In addition to its homebuilding, Forestar and financial services operations, the Company has subsidiaries that engage in other business activities. These subsidiaries conduct insurance-related operations, construct and own income-producing rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets. One of these subsidiaries, DHI Communities, constructs multi-family rental properties and has four projects under active construction and two projects that are substantially complete at March 31, 2019. In January 2019, DHI Communities sold its first multi-family rental property for $73.4 million and recorded a gain on the sale of $29.3 million, which is included in the consolidated statements of operations for the three and six months ended March 31, 2019. At March 31, 2019 and September 30, 2018, the consolidated balance sheets included $170.2 million and $173.2 million, respectively, of assets related to DHI Communities. The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and presented as other.

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, 2018. Financial information relating to the Company’s reporting segments is as follows:



	March 31, 2019
	Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Assets
Cash and cash equivalents	$	557.3	$	66.4	$	61.1	$	14.0	$	—		$	—		$	698.8
Restricted cash	9.4		15.7		7.3		—		—			—			32.4
Inventories:
Construction in progress and finished homes	6,086.1		—		—		—		1.5			—			6,087.6
Residential land and lots — developed and under development	4,879.4		803.0		—		—		(22.1		)	12.6			5,672.9
Land held for development	62.3		48.5		—		—		—			—			110.8
Land held for sale	49.0		—		—		—		—			—			49.0
	11,076.8		851.5		—		—		(20.6		)	12.6			11,920.3
Mortgage loans held for sale	—		—		796.5		—		—			—			796.5
Deferred income taxes, net	155.0		22.9		—		—		1.5			(7.5		)	171.9
Property and equipment, net	220.2		2.4		3.4		211.9		—			—			437.9
Other assets	732.8		26.0		52.1		37.4		(75.2		)	12.6			785.7
Goodwill	134.3		—		—		—		—			29.2			163.5
	$	12,885.8	$	984.9	$	920.4	$	263.3	$	(94.3	)	$	46.9		$	15,007.0
Liabilities
Accounts payable	$	631.7	$	16.1	$	9.4	$	3.0	$	(1.7	)	$	—		$	658.5
Accrued expenses and other liabilities	1,102.2		131.9		43.8		10.9		(83.3		)	(13.4		)	1,192.1
Notes payable	2,777.2		149.2		690.7		—		—			5.3			3,622.4
	$	4,511.1	$	297.2	$	743.9	$	13.9	$	(85.0	)	$	(8.1	)	$	5,473.0

______________


(1)	Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	September 30, 2018
	Homebuilding		Forestar (1)		Financial Services		Other (2)		Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Assets
Cash and cash equivalents	$	1,111.8	$	318.8	$	33.7	$	8.8	$	—		$	—		$	1,473.1
Restricted cash	8.6		16.2		8.1		—		—			—			32.9
Inventories:
Construction in progress and finished homes	5,084.4		—		—		—		1.9			—			5,086.3
Residential land and lots — developed and under development	4,689.3		463.1		—		—		(7.2		)	27.2			5,172.4
Land held for development	61.2		34.9		—		—		—			—			96.1
Land held for sale	40.2		—		—		—		—			—			40.2
	9,875.1		498.0		—		—		(5.3		)	27.2			10,395.0
Mortgage loans held for sale	—		—		796.4		—		—			—			796.4
Deferred income taxes, net	176.5		26.9		—		—		1.1			(10.5		)	194.0
Property and equipment, net	207.1		1.8		3.0		189.2		—			—			401.1
Other assets	673.7		31.4		43.6		0.9		(48.6		)	11.9			712.9
Goodwill	80.0		—		—		—		—			29.2			109.2
	$	12,132.8	$	893.1	$	884.8	$	198.9	$	(52.8	)	$	57.8		$	14,114.6
Liabilities
Accounts payable	$	612.4	$	11.2	$	0.2	$	4.2	$	(3.3	)	$	—		$	624.7
Accrued expenses and other liabilities	1,041.3		95.7		41.9		9.9		(46.1		)	(15.2		)	1,127.5
Notes payable	2,445.9		111.7		637.7		—		—			8.2			3,203.5
	$	4,099.6	$	218.6	$	679.8	$	14.1	$	(49.4	)	$	(7.0	)	$	4,955.7

______________


(1)	Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	Three Months Ended March 31, 2019
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	3,980.5		$	—		$	—		$	—		$	—		$	—		$	3,980.5
Land/lot sales and other	14.9			65.4			—			6.0			(39.7		)	—			46.6
Financial services	—			—			101.6			—			—			—			101.6
	3,995.4			65.4			101.6			6.0			(39.7		)	—			4,128.7
Cost of sales:
Home sales (5)	3,214.2			—			—			—			(0.7		)	—			3,213.5
Land/lot sales and other	9.3			43.7			—			—			(31.8		)	8.2			29.4
Inventory and land option charges	13.8			—			—			—			—			—			13.8
	3,237.3			43.7			—			—			(32.5		)	8.2			3,256.7
Selling, general and administrative expense	359.3			6.2			71.3			7.3			—			0.1			444.2
Gain on sale of assets	—			—			—			(29.3		)	—			—			(29.3		)
Other (income) expense	(1.6		)	(0.9		)	(3.7		)	0.5			—			—			(5.7		)
Income before income taxes	$	400.4		$	16.4		$	34.0		$	27.5		$	(7.2	)	$	(8.3	)	$	462.8

______________


(1)	Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.


(5)	Amount in the Eliminations column represents the 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.



	Six Months Ended March 31, 2019
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	7,391.2		$	—		$	—		$	—		$	—		$	—		$	7,391.2
Land/lot sales and other	21.7			103.8			—			12.8			(68.7		)	—			69.6
Financial services	—			—			186.9			—			—			—			186.9
	7,412.9			103.8			186.9			12.8			(68.7		)	—			7,647.7
Cost of sales:
Home sales (5)	5,943.4			—			—			—			(1.7		)	—			5,941.7
Land/lot sales and other	14.5			74.3			—			—			(56.3		)	11.8			44.3
Inventory and land option charges	21.8			—			—			—			—			—			21.8
	5,979.7			74.3			—			—			(58.0		)	11.8			6,007.8
Selling, general and administrative expense	683.9			11.9			137.0			13.9			—			0.3			847.0
Gain on sale of assets	(2.0		)	(0.9		)	—			(29.3		)	—			0.9			(31.3		)
Other (income) expense	(3.5		)	(2.8		)	(7.7		)	(0.3		)	—			—			(14.3		)
Income before income taxes	$	754.8		$	21.3		$	57.6		$	28.5		$	(10.7	)	$	(13.0	)	$	838.5
Summary Cash Flow Information:
Depreciation and amortization	$	30.1		$	0.1		$	0.7		$	2.9		$	—		$	0.3		$	34.1
Cash (used in) provided by operating activities	$	(215.9	)	$	(283.4	)	$	48.8		$	(4.1	)	$	(2.7	)	$	(4.4	)	$	(461.7	)

______________


(1)	Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.


(5)	Amount in the Eliminations column represents the 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.



	Three Months Ended March 31, 2018
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	3,672.1		$	—		$	—		$	—		$	—		$	—		$	3,672.1
Land/lot sales and other	13.6			22.6			—			—			(8.5		)	—			27.7
Financial services	—			—			94.9			—			—			—			94.9
	3,685.7			22.6			94.9			—			(8.5		)	—			3,794.7
Cost of sales:
Home sales	2,907.5			—			—			—			—			—			2,907.5
Land/lot sales and other	12.0			16.2			—			—			(6.7		)	2.5			24.0
Inventory and land option charges	30.1			—			—			—			—			—			30.1
	2,949.6			16.2			—			—			(6.7		)	2.5			2,961.6
Selling, general and administrative expense	322.7			5.6			66.7			5.8			—			0.1			400.9
Gain on sale of assets	—			(2.7		)	—			—			—			1.6			(1.1		)
Interest expense	—			2.1			—			—			(2.1		)	—			—
Other (income) expense	(2.6		)	(3.2		)	(3.2		)	(3.6		)	—			1.1			(11.5		)
Income (loss) before income taxes	$	416.0		$	4.6		$	31.4		$	(2.2	)	$	0.3		$	(5.3	)	$	444.8

______________


(1)	Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



	Six Months Ended March 31, 2018
	Homebuilding			Forestar (1)			Financial Services			Other (2)			Eliminations (3)			Other Adjustments (4)			Consolidated
	(In millions)
Revenues:
Home sales	$	6,856.6		$	—		$	—		$	—		$	—		$	—		$	6,856.6
Land/lot sales and other	50.0			53.5			—			—			(8.5		)	—			95.0
Financial services	—			—			176.0			—			—			—			176.0
	6,906.6			53.5			176.0			—			(8.5		)	—			7,127.6
Cost of sales:
Home sales	5,429.0			—			—			—			—			—			5,429.0
Land/lot sales and other	43.3			35.5			—			—			(6.7		)	6.9			79.0
Inventory and land option charges	33.8			—			—			—			—			—			33.8
	5,506.1			35.5			—			—			(6.7		)	6.9			5,541.8
Selling, general and administrative expense	627.5			19.1			128.4			9.8			—			0.3			785.1
Gain on sale of assets	(13.4		)	(2.7		)	—			—			—			1.6			(14.5		)
Interest expense	—			4.2			—			—			(4.2		)	—			—
Other (income) expense	(3.4		)	(11.3		)	(6.1		)	(6.5		)	—			6.4			(20.9		)
Income (loss) before income taxes	$	789.8		$	8.7		$	53.7		$	(3.3	)	$	2.4		$	(15.2	)	$	836.1
Summary Cash Flow Information:
Depreciation and amortization	$	26.3		$	2.5		$	0.7		$	3.3		$	—		$	0.3		$	33.1
Cash provided by (used in) operating activities	$	90.7		$	(150.2	)	$	(30.7	)	$	(0.5	)	$	—		$	(8.1	)	$	(98.8	)

______________


(1)	Results are presented from the date of acquisition and on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments column.


(2)	Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.


(3)	Amounts represent the elimination of intercompany transactions and the reclassification of Forestar interest expense to inventory.


(4)	Amounts represent purchase accounting adjustments related to the Forestar acquisition.



Homebuilding Inventories by Reporting Segment (1)	March 31, 2019		September 30, 2018
	(In millions)
East	$	1,354.4	$	1,192.0
Midwest	817.7		583.1
Southeast	2,852.1		2,668.7
South Central	2,720.6		2,439.4
Southwest	628.1		499.7
West	2,466.9		2,268.5
Corporate and unallocated (2)	237.0		223.7
	$	11,076.8	$	9,875.1

_________________


(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 capitalized interest and property taxes.



Homebuilding Results by Reporting Segment	Three Months Ended March 31,				Six Months Ended March 31,
	2019		2018		2019		2018
	(In millions)
Revenues
East	$	518.2	$	435.8	$	965.7	$	828.9
Midwest	248.1		203.6		497.2		365.0
Southeast	1,205.3		1,042.0		2,219.2		2,030.6
South Central	990.2		919.0		1,862.7		1,727.8
Southwest	173.2		172.1		316.9		328.5
West	860.4		913.2		1,551.2		1,625.8
	$	3,995.4	$	3,685.7	$	7,412.9	$	6,906.6
Inventory and Land Option Charges
East	$	0.3	$	0.7	$	1.7	$	0.6
Midwest	0.2		0.2		0.5		0.4
Southeast	2.2		25.1		3.5		26.2
South Central	1.4		0.6		1.9		1.9
Southwest	0.1		—		0.2		0.8
West	9.6		3.5		14.0		3.9
	$	13.8	$	30.1	$	21.8	$	33.8
Income before Income Taxes (1)
East	$	45.9	$	46.7	$	83.9	$	91.7
Midwest	9.5		18.7		20.2		32.0
Southeast	131.0		96.3		243.2		218.8
South Central	119.3		120.5		225.3		222.0
Southwest	18.6		22.0		36.3		36.7
West	76.1		111.8		145.9		188.6
	$	400.4	$	416.0	$	754.8	$	789.8

_________________

(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 the Company’s corporate office. The amortization of capitalized interest and property taxes is allocated to each homebuilding segment based on the segment’s cost of sales, while expenses associated with the corporate office are allocated to each homebuilding segment based on the segment’s inventory balances.