UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)
☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From              To             

Commission file number 1-14122

D.R. Horton, Inc.

(Exact name of registrant as specified in its charter)

Delaware	75-2386963
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1341 Horton Circle

Arlington, Texas 76011

(Address of principal executive offices) (Zip code)

(817) 390-8200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share	DHI	New York Stock Exchange
5.750% Senior Notes due 2023	DHI 23A	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý     No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ý

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

As of November 12, 2020, there were 364,390,995 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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

D.R. HORTON, INC. AND SUBSIDIARIES

2020 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
PART I
ITEM 1.	Business	1
ITEM 1A.	Risk Factors	13
ITEM 1B.	Unresolved Staff Comments	24
ITEM 2.	Properties	24
ITEM 3.	Legal Proceedings	24
ITEM 4.	Mine Safety Disclosures	24
PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters      and Issuer Purchases of Equity Securities	25
ITEM 6.	Selected Financial Data	27
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
ITEM 8.	Financial Statements and Supplementary Data	62
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	105
ITEM 9A.	Controls and Procedures	105
ITEM 9B.	Other Information	105
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance	106
ITEM 11.	Executive Compensation	106
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management      and Related Stockholder Matters	106
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	107
ITEM 14.	Principal Accountant Fees and Services	107
PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	108
ITEM 16.	10-K Summary	113
SIGNATURES		114

PART I

ITEM 1.    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 88 markets across 29 states, primarily under the names of D.R. Horton, America’s Builder, Emerald Homes, Express Homes and Freedom Homes. 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 homebuilding business began in 1978 in Fort Worth, Texas, and our common stock has been publicly traded since 1992. We have expanded and diversified our homebuilding operations geographically over the years by investing available capital into our existing markets, start-up operations in new markets and acquisitions of other homebuilding companies. Our product offerings across our operating markets are broad and diverse. Our homes range in size from 1,000 to more than 4,000 square feet and in price from $150,000 to more than $1,000,000. For the year ended September 30, 2020, we closed 65,388 homes with an average closing price of $299,100.

Our business operations consist of homebuilding, a majority-owned residential lot development company, financial services and other activities. Our homebuilding operations are our core business, generating 97% of our consolidated revenues of $20.3 billion, $17.6 billion and $16.1 billion in fiscal 2020, 2019 and 2018, respectively. Our homebuilding operations generate most of their revenues from the sale of completed homes and to a lesser extent from the sale of land and lots. Approximately 91% of our home sales revenue in fiscal 2020 was generated from the sale of single-family detached homes, with the remainder from the sale of attached homes, such as townhomes, duplexes and triplexes.

Our position as the most geographically diverse and largest volume homebuilder in the United States provides a strong platform for us to compete for new home sales. In recent years, we have expanded our product offerings to include a broad range of homes for entry-level, move-up, active adult and luxury buyers across our markets. Our entry-level homes at affordable price points have experienced very strong demand from homebuyers, as the entry-level segment of the new home market remains under-served, with low inventory levels relative to demand.

During fiscal 2018, we acquired 75% 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 is a component of our homebuilding strategy to enhance operational and capital efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts. At September 30, 2020, we owned 65% of Forestar’s outstanding common stock.

Our financial services operations provide mortgage financing and title agency services to homebuyers in many of our homebuilding markets. DHI Mortgage, our 100% owned subsidiary, provides mortgage financing services primarily to our homebuyers and sells substantially all of the mortgages it originates and the majority of the related servicing rights to third-party purchasers. DHI Mortgage originates loans in accordance with purchaser guidelines and sells substantially all of its mortgage production shortly after origination. Our 100% owned subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services, primarily to our homebuyers.

In addition to our homebuilding, Forestar and financial services operations, we have subsidiaries that engage in other business activities. These subsidiaries conduct insurance-related operations, construct and own income-producing multi-family rental properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related assets. The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and presented as other.

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Available Information

We make available, as soon as reasonably practicable, on our website, www.drhorton.com, all of our reports required to be filed with the Securities and Exchange Commission (SEC). These reports can be found on the “Investor Relations” section of our website under “Financial Information” and include our annual and quarterly reports on Form 10-K and 10-Q, current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports. Our SEC filings are also available to the public on the SEC’s website at www.sec.gov. In addition to our SEC filings, our corporate governance documents, including our Code of Ethical Conduct for the Chief Executive Officer, Chief Financial Officer and senior financial officers, are available on the “Investor Relations” section of our website under “Corporate Governance.” Our stockholders may also obtain these documents in paper format free of charge upon request made to our Investor Relations department.

Our principal executive offices are located at 1341 Horton Circle, Arlington, Texas 76011, and our telephone number is (817) 390-8200. Information on or linked to our website is not incorporated by reference into this annual report on Form 10-K unless expressly noted.

OPERATING STRUCTURE AND PROCESSES

Following is an overview of our company’s operating structure and the significant processes that support our business controls, strategies and performance.

Homebuilding Markets

Our homebuilding business operates in 88 markets across 29 states, which provides us with geographic diversification in our homebuilding inventory investments and our sources of revenues and earnings. We believe our geographic diversification lowers our operational risks by mitigating the effects of local and regional economic cycles, and it also enhances our earnings potential by providing more diverse opportunities to invest in our business.

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We conduct our homebuilding operations in the geographic regions, states and markets listed below, and we conduct our financial services operations in many of these markets. 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
	East Region		Midwest Region
Delaware	Central Delaware	Colorado	Denver
	Northern Delaware		Fort Collins
Georgia	Savannah	Illinois	Chicago
Maryland	Baltimore	Indiana	Fort Wayne
	Suburban Washington, D.C.		Indianapolis
New Jersey	Northern New Jersey	Iowa	Des Moines
	Southern New Jersey	Minnesota	Minneapolis/St. Paul
North Carolina	Asheville	Ohio	Cincinnati
	Charlotte		Columbus
	Greensboro/Winston-Salem
	Raleigh/Durham		South Central Region
	Wilmington	Louisiana	Baton Rouge
Pennsylvania	Central Pennsylvania		Lake Charles/Lafayette
	Philadelphia	Oklahoma	Oklahoma City
South Carolina	Charleston	Texas	Austin
	Columbia		Bryan/College Station
	Greenville/Spartanburg		Dallas
	Hilton Head		Fort Worth
	Myrtle Beach		Houston
Virginia	Northern Virginia		Killeen/Temple/Waco
	Southern Virginia		Midland/Odessa
			New Braunfels/San Marcos
	Southeast Region		San Antonio
Alabama	Birmingham
	Huntsville		Southwest Region
	Mobile/Baldwin County	Arizona	Phoenix
	Montgomery		Tucson
	Tuscaloosa	New Mexico	Albuquerque
Florida	Fort Myers/Naples
	Gainesville		West Region
	Jacksonville	California	Bakersfield
	Lakeland		Bay Area
	Melbourne/Vero Beach		Fresno
	Miami/Fort Lauderdale		Los Angeles County
	Ocala		Modesto/Merced
	Orlando		Riverside County
	Pensacola/Panama City		Sacramento
	Port St. Lucie		San Bernardino County
	Tampa/Sarasota		San Diego County
	Volusia County	Hawaii	Oahu
	West Palm Beach	Nevada	Las Vegas
Georgia	Atlanta		Reno
	Augusta	Oregon	Bend
Mississippi	Gulf Coast		Portland/Salem
Tennessee	Chattanooga	Utah	Salt Lake City
	Knoxville	Washington	Seattle/Tacoma/Everett/Olympia
	Memphis		Spokane
	Nashville		Vancouver

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When evaluating new or existing homebuilding markets for purposes of capital allocation, we consider local, market-specific factors, including among others:

•Economic conditions;

•Employment levels and job growth;

•Income level of potential homebuyers;

•Local housing affordability and typical mortgage products utilized;

•Market for homes at our targeted price points;

•Availability of land and lots in desirable locations on acceptable terms;

•Land entitlement and development processes;

•Availability of qualified subcontractors;

•New and secondary home sales activity;

•Competition;

•Prevailing housing products, features, cost and pricing; and

•Performance capabilities of our local management team.

Economies of Scale

We are the largest homebuilding company in the United States in fiscal 2020 as measured by number of homes closed, and we are also one of the largest builders in most of the markets in which we operate. We believe that our national, regional and local scale of operations provides us with benefits that may not be available to the same degree to some other smaller homebuilders, such as:

•Greater access to and lower cost of capital, due to our balance sheet strength and our lending and capital markets relationships;

•Volume discounts and rebates from national, regional and local materials suppliers and lower labor rates from certain subcontractors; and

•Enhanced leverage of our general and administrative activities, which allows us flexibility to adjust to changes in market conditions and compete effectively across our markets.

Decentralized Homebuilding Operations

We view homebuilding as a local business; therefore, most of our direct homebuilding activities are decentralized to provide flexibility to our local managers in making operational decisions. We believe that our local management teams, who are familiar with local market conditions, have the best information to make many decisions regarding their operations. At September 30, 2020, we had 53 separate homebuilding operating divisions, many of which operate in more than one market area. Generally, each operating division consists of a division president; a controller and accounting personnel; land entitlement, acquisition and development personnel; a sales manager and sales and marketing personnel; a construction manager and construction superintendents; customer service personnel; a purchasing manager and office staff. Our division presidents receive performance-based compensation if they achieve targeted financial and operating metrics related to their operating divisions. Following is a summary of our homebuilding activities that are decentralized in our local operating divisions, and the control and oversight functions that are centralized in our regional and corporate offices.

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Operating Division Responsibilities

Each operating division is responsible for:

•Site selection, which involves

— A feasibility study;

— Soil and environmental reviews;

— Review of existing zoning and other governmental requirements;

— Review of the need for and extent of offsite work required to obtain project entitlements; and

— Financial analysis of the potential project;

•Negotiating lot purchase, land acquisition and related contracts;

•Obtaining all necessary land development and home construction approvals;

•Selecting land development subcontractors and ensuring their work meets our contracted scopes;

•Selecting building and architectural plans;

•Selecting home construction subcontractors and ensuring their work meets our contracted scopes;

•Planning and managing home construction schedules;

•Determining the pricing for each house plan and options in a given community;

•Developing and implementing local marketing and sales plans;

•Coordinating all interactions with customers and real estate brokers during the sales, construction and home closing processes; and

•Ensuring the quality and timeliness of post-closing service and warranty repairs provided to customers.

Centralized Controls

We centralize many important risk elements of our homebuilding business through our regional and corporate offices. We have five separate homebuilding regional offices. Generally, each regional office consists of a region president, a chief financial officer, legal counsel and other operational and office support staff. Each of our region presidents and their management teams are responsible for oversight of the operations of a number of homebuilding operating divisions, including:

•Review and approval of division business plans and budgets;

•Review and approval of all land and lot acquisition contracts;

•Review of all business and financial analysis for potential land and lot inventory investments;

•Oversight of land and home inventory levels;

•Monitoring division financial and operating performance; and

•Review of major personnel decisions and division incentive compensation plans.

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Our corporate executives and corporate office departments are responsible for establishing our operational policies and internal control standards and for monitoring compliance with established policies and controls throughout our operations. The corporate office also has primary responsibility for direct management of certain key risk elements and initiatives through the following centralized functions:

•Financing;

•Cash management;

•Allocation of capital;

•Issuance and monitoring of inventory investment guidelines;

•Approval and funding of land and lot acquisitions;

•Monitoring and analysis of profitability, returns, costs and inventory levels;

•Risk and litigation management;

•Environmental assessments of land and lot acquisitions;

•Technology systems to support management of operations, marketing and financial information;

•Accounting and management reporting;

•Income taxes;

•Internal audit;

•Public reporting and investor and media relations;

•Administration of payroll and employee benefits;

•Negotiation of national purchasing contracts;

•Administration, reporting and monitoring of customer satisfaction surveys and resolutions of issues; and

•Approval of major personnel decisions and management incentive compensation plans.

Land/Lot Acquisition and Inventory Management

We acquire land for use in our homebuilding and Forestar operations after we have completed due diligence and generally after we have obtained the rights (known as entitlements) to begin development or construction work resulting in an acceptable number of residential lots. Before we acquire lots or tracts of land, we complete a feasibility study, which includes soil tests, independent environmental studies, other engineering work and financial analysis. We also evaluate the status of necessary zoning and other governmental entitlements required to develop and use the property for home construction. Although we purchase and develop land primarily to support our homebuilding activities, we may sell land and lots to other developers and homebuilders where we have excess land and lot positions or for other strategic reasons.

We also enter into land/lot contracts, in which we obtain the right, but generally not the obligation, to buy land or lots at predetermined prices on a defined schedule commensurate with anticipated home closings or planned development. These contracts generally are non-recourse, which limits our financial exposure to our earnest money deposited into escrow under the terms of the contract and any pre-acquisition due diligence costs we incur. This enables us to control land and lot positions with limited capital investment, which substantially reduces the risks associated with land ownership.

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We directly acquire almost all of our land and lot positions. We are a party to a small number of joint ventures. Joint ventures are consolidated if we have a controlling interest, or accounted for under the equity method of accounting if we have a significant influence, but not control.

We attempt to mitigate our exposure to real estate inventory risks by:

•Controlling our level of inventory investment and managing our supply of land/lots owned and controlled under purchase contracts to match the expected housing demand in each of our operating markets;

•Monitoring local market and demographic trends, housing preferences and related economic developments, including the identification of desirable housing submarkets based on the quality of local schools, new job opportunities, local growth initiatives and personal income trends;

•Utilizing land/lot purchase contracts and seeking to acquire developed lots which are substantially ready for home construction, where possible; and

•Monitoring and managing the number of speculative homes (homes under construction without an executed sales contract) built in each subdivision.

Land Development and Home Construction

Substantially all of our land development and home construction work is performed by subcontractors. Subcontractors typically are selected after a competitive bidding process and are retained for a specific subdivision or series of house plans pursuant to a contract that obligates the subcontractor to complete the scope of work at an agreed-upon price. We employ land development managers and construction superintendents to monitor land development and home construction activities, participate in major design and building decisions, coordinate the activities of subcontractors and suppliers, review the work of subcontractors for quality and cost controls and monitor compliance with zoning and building codes. In addition, our construction superintendents interact with our homebuyers during the construction process and instruct buyers on post-closing home maintenance.

Our home designs are selected or prepared in each of our markets to appeal to local homebuyers’ expectations for affordability, home size and features, and our local management teams adjust product offerings to meet buyer demand as necessary. In many communities, we offer optional interior and exterior features to homebuyers for an additional charge. Construction time for our homes depends on the availability of labor, materials and supplies, the weather, the size of the home and other factors. We complete the construction of most homes within two to six months.

We typically do not maintain significant inventories of land development or construction materials, except for work in progress materials for active development projects and homes under construction. Generally, the construction materials used in our operations are readily available from numerous sources. We have contracts exceeding one year with certain suppliers of building materials that are cancelable at our option.

We are subject to governmental regulations that affect our land development and construction operations. At times, we have experienced delays in receiving the proper approvals from municipalities or other government agencies that have delayed our anticipated development and construction activities in certain communities.

Cost Controls

We control construction costs by designing our homes efficiently and by obtaining competitive bids for construction materials and labor. We also competitively bid and negotiate pricing from our subcontractors and suppliers based on the volume of services and products we purchase on a local, regional and national basis. We monitor our land development expenditures and construction costs versus budgets for each house and community, and we review our inventory levels, margins, expenses, profitability and returns for each operating market compared to both its business plan and our performance expectations.

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We control overhead costs by centralizing certain accounting and administrative functions, monitoring staffing and compensation levels and by applying technology to business processes to improve productivity where practical. We review other general and administrative costs to identify efficiencies and savings opportunities in our operating divisions and our regional and corporate offices. We also direct many of our promotional activities toward local real estate brokers and digital marketing initiatives, which we believe are efficient uses of our marketing expenditures.

Marketing and Sales

We primarily use the D.R. Horton, Emerald Homes, Express Homes and Freedom Homes brand names to market and sell our homes. Our D.R. Horton branded communities are the core of our business and account for the majority of our home closings, focusing primarily on the first time and first time move-up homebuyer. Our Emerald branded communities appeal to buyers in search of higher-end move-up and luxury homes. Our Express branded communities primarily accommodate a segment of entry-level buyers who are focused on affordability. Our Freedom Homes brand offers homes at affordable price points to active adult buyers seeking a low-maintenance lifestyle. The percentage of home closings and home sales revenue contributed by each brand during fiscal 2020 was as follows:

	Percentage of Home Closings		Percentage of Home Sales Revenue
D.R. Horton	63	%	66	%
Emerald	2	%	3	%
Express	32	%	28	%
Freedom	3	%	3	%
Total	100	%	100	%

We also use names of acquired companies for a period of time after the acquisition. We currently utilize the Pacific Ridge Homes brand in our Seattle, Washington market; the Lexington Homes brand in our Spokane, Washington market; and the Terramor Homes brand in our Raleigh, North Carolina market. The product offerings in all of these markets are similar to, and included with, our D.R. Horton branded communities shown above.

We market and sell our homes primarily through commissioned employees, and the majority of our home closings also involve an independent real estate broker. We typically conduct home sales from sales offices located in furnished model homes in each subdivision, and we generally do not offer our model homes for sale until the completion of a subdivision. Our sales personnel assist prospective homebuyers by providing floor plans and price information, demonstrating the features and layouts of our homes and assisting with the selection of options, when available. We train and inform our sales personnel regarding construction schedules and marketing and advertising plans. As market conditions warrant, we may provide potential homebuyers with incentives, such as discounts or free upgrades, to be competitive in a particular market or to attain our targeted sales pace.

We market our homes and communities to prospective homebuyers and real estate brokers digitally, through email, search engine marketing, social media and our company website and other real estate websites, in addition to print media and advertisement. We also use billboards, radio, television, magazine and newspaper advertising locally as necessary. We attempt to position our subdivisions in locations that are desirable to potential homebuyers and convenient to or visible from local traffic patterns, which helps to reduce advertising costs. Model homes play an important role in our marketing efforts, and we expend significant effort and resources to create an attractive atmosphere in our model homes.

We also build speculative homes in most of our communities, which allow us to compete effectively with existing homes available in the market and improve our profits and returns. These homes enhance our marketing and sales efforts to prospective homebuyers who are renters or who are relocating to these markets and require a home within a short time frame, as well as to independent brokers who represent these homebuyers. We determine our speculative homes strategy in each market based on local market factors, such as new job growth, the number of job relocations, housing demand and supply, seasonality, current sales contract cancellation trends and our past experience in the market. We maintain a level of speculative home inventory in each community based on our current and planned sales pace, and we monitor and adjust speculative home inventory on an ongoing basis as conditions warrant.

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Sales Contracts and Backlog

Our sales contracts require an earnest money deposit which varies in amount across our markets and communities. Additionally, customers are generally required to pay additional deposits when they select options or upgrade features for their homes. Our sales contracts include a financing contingency which permits customers to cancel and receive a refund of their deposit if they cannot obtain mortgage financing at prevailing or specified interest rates within a specified period. Our contracts may include other contingencies, such as the sale of an existing home. We either retain or refund customer deposits on cancelled sales contracts, depending upon the applicable provisions of the contract or other circumstances.

Sales order backlog represents homes under contract but not yet closed at the end of the period. At September 30, 2020, the value of our backlog of sales orders was $8.2 billion (26,683 homes), an increase of 98% from $4.1 billion (13,613 homes) at September 30, 2019. The average sales price of homes in backlog was $306,800 at September 30, 2020, up slightly from the $304,100 average at September 30, 2019. Many of the contracts in our sales order backlog are subject to contingencies, such as those described above, which can result in cancellations. As a percentage of gross sales orders, cancellations of sales contracts were 20% in fiscal 2020 compared to 21% in fiscal 2019.

The length of time between the signing of a sales contract for a home and delivery of the home to the buyer (closing) is generally from one to six months; therefore, substantially all of the homes in our sales backlog at September 30, 2020 are scheduled to close in fiscal 2021.

Customer Service and Quality Control

Our operating divisions are responsible for pre-closing quality control inspections and responding to customers’ post-closing needs. We believe that a prompt and courteous response to homebuyers’ needs during and after construction reduces post-closing repair costs, enhances our reputation for quality and service and ultimately leads to repeat and referral business from the real estate community and homebuyers. We typically provide our homebuyers with a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems, and a one-year limited warranty on other construction components. The subcontractors who perform the actual construction also provide us with warranties on workmanship and are generally prepared to respond to us and the homeowner promptly upon request. In addition, some of our suppliers provide manufacturer’s warranties on specified products installed in the home.

Single-Family Rental Properties

During fiscal 2020, several of our homebuilding divisions began constructing and leasing homes as single-family rental properties. After these rental properties are constructed and achieve a stabilized level of leased occupancy, the properties in each community are expected to be marketed in bulk for sale. At September 30, 2020, our homebuilding fixed assets included $87.2 million of assets related to our single-family rental platform representing approximately 740 single-family rental homes and finished lots, including approximately 440 completed homes. There were no bulk sales of single-family rental properties in fiscal 2020.

Forestar Residential Lot Development Operations

During fiscal 2018, we acquired 75% of the outstanding shares of Forestar. Forestar is a residential lot development company with operations in 49 markets across 21 states as of September 30, 2020. We owned approximately 65% of Forestar’s outstanding common stock at September 30, 2020. Forestar is a component of our homebuilding strategy to enhance operational efficiency and returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled under land purchase contracts. Forestar’s strategy is focused on making investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S. lot development industry. Our homebuilding operations acquire finished lots from Forestar in accordance with the master supply agreement between the two companies. A shared services agreement is in place whereby we provide Forestar certain administrative, compliance, operational and procurement services. As the controlling shareholder of Forestar, we have significant influence in guiding the strategic direction and operations of Forestar.

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Customer Mortgage Financing

We provide mortgage financing services principally to purchasers of our homes in the majority of our homebuilding markets through DHI Mortgage, our 100% owned subsidiary. DHI Mortgage assists in the sales transaction by coordinating the mortgage application, mortgage commitment and home closing processes to facilitate a timely and efficient home buying experience for our buyers. During the year ended September 30, 2020, DHI Mortgage provided mortgage financing services for approximately 68% of our total homes closed, and approximately 97% of DHI Mortgage’s loan volume related to homes closed by our homebuilding operations. Most of our homebuilding divisions also work with additional mortgage lenders that offer a range of mortgage financing programs to our homebuyers.

To limit the risks associated with our mortgage operations, DHI Mortgage originates loan products that we believe can be sold to third-party purchasers of mortgage loans, the majority of which are 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). DHI Mortgage sells substantially all of the loans and the majority of the related servicing rights to third-party purchasers shortly after origination with limited recourse provisions. DHI Mortgage centralizes most of its control and oversight functions, including those related to loan underwriting, quality control, regulatory compliance, secondary marketing of loans, hedging activities, accounting and financial reporting.

Title Services

Through our subsidiary title companies, we serve as a title insurance agent in selected markets by providing title insurance policies, examination and closing services primarily to our homebuilding customers.

Insurance Agency

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

Multi-Family Rental Properties

Through DHI Communities, a 100% owned subsidiary, we develop, construct and own multi-family residential properties that produce rental income. DHI Communities is primarily focused on constructing garden style multi-family communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After DHI Communities has completed construction and achieved a stabilized level of leased occupancy, the property is typically marketed for sale. DHI Communities had five projects under active construction and one project that was substantially complete at September 30, 2020. These six projects represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units. During fiscal 2020 and 2019, DHI Communities sold multi-family rental properties for a total of $128.5 million and $133.4 million, respectively, and recorded gains on sale totaling $59.4 million and $51.9 million. At September 30, 2020 and 2019, our consolidated balance sheets included $246.2 million and $204.0 million, respectively, of assets related to DHI Communities.

Human Capital Resources

As of September 30, 2020, we employ 9,716 people, of whom 6,818 work in our homebuilding operations, 2,163 in our financial services segment, 463 at our corporate office, 143 for our Forestar subsidiary and 129 in our other businesses. Of our homebuilding employees, 2,666 are involved in construction, 1,996 are sales and marketing personnel and 2,156 are office personnel.

We believe the people who work for our company are our most important resources and are critical to our continued success. We focus significant attention toward attracting and retaining talented and experienced individuals to manage and support our operations. We offer our employees a broad range of company-paid benefits, and we believe our compensation package and benefits are competitive with others in our industry. Additional information about our employee benefit plans is included in Note K.

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Our management team supports a culture of developing future leaders from our existing workforce, enabling us to promote from within for many leadership positions. We believe this provides long-term focus and continuity to our operations while also providing opportunities for the growth and advancement of our employees. Our focus on retention is evident in the length of service of our executive, regional and divisional management teams. The average tenure of our executive team and homebuilding region presidents is 27 years and the average tenure of our homebuilding division presidents and city managers is greater than 10 years.

We are committed to hiring, developing and supporting a diverse and inclusive workplace. Our management teams are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All of our employees must adhere to a code of conduct that sets standards for appropriate behavior and includes required internal training on preventing, identifying, reporting and stopping any type of discrimination.

During fiscal 2020, despite the COVID-19 pandemic (C-19), we increased the number of employees in all of our operating segments and kept all of our employee compensation and benefit plans intact. We have implemented safety protocols to protect our employees and our homebuyers during the pandemic. These protocols include complying with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. Many of our administrative and operational functions during this time have required modification, including some of our workforce working remotely. Our experienced teams of people adapted to the changes in our work environment and have managed our business successfully during this challenging time.

Business Acquisitions

We routinely evaluate opportunities to profitably expand our operations, including potential acquisitions of other homebuilding or related businesses. Acquisitions of homebuilding and related businesses usually provide us with immediate land and home inventories and control of additional land and lot positions through purchase contracts. Also, employees of acquired businesses generally have specialized knowledge of local market conditions, including existing relationships with municipalities, land owners, developers, subcontractors and suppliers. These inventory positions and local market knowledge and relationships could take us several years to develop through our own efforts. We seek to limit the risks associated with acquiring other companies by conducting extensive operational, financial and legal due diligence on each acquisition and by performing financial analysis to determine that each acquisition will have a positive impact on our earnings within an acceptable period of time.

Competition

The homebuilding and lot development industries are highly competitive. We compete with numerous other national, regional and local homebuilders and developers for homebuyers, desirable land, raw materials, skilled labor, employees, management talent and financing. We also compete with resales of existing and foreclosed homes and with the rental housing market. Our homes compete on the basis of price, location, quality, design and mortgage financing terms.

The competitors to our financial services businesses include other mortgage lenders and title companies, including national, regional and local mortgage bankers and other financial institutions. Some of these competitors are subject to fewer governmental regulations and may have greater access to capital, and some of them may operate with different lending criteria and may offer a broader array of financing and other products and services to consumers than we do. We strive to provide flexible, fairly priced financing alternatives subject to applicable regulations.

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Governmental Regulations and Environmental Matters

The homebuilding industry is subject to extensive and complex regulations. We and the subcontractors we use must comply with many federal, state and local laws and regulations. These include zoning, density and development requirements and building, environmental, advertising, labor and real estate sales rules and regulations. These regulations and requirements affect substantially all aspects of our land development and home design, construction and sales processes in varying degrees across our markets. Our homes are inspected by local authorities where required, and homes eligible for insurance or guarantees provided by the Federal Housing Administration (FHA) and the U.S. Department of Veteran Affairs (VA) are subject to inspection by them. These regulations often provide broad discretion to the administering governmental authorities. In addition, our new housing developments may be subject to various assessments for schools, parks, streets, utilities and other public improvements.

Our homebuilding and land development operations are also subject to an extensive array of local, state and federal statutes, ordinances, rules and regulations concerning protection of health, safety and the environment. The particular compliance requirements for each site vary greatly according to location, environmental condition and the present and former uses of the site and adjoining properties.

Our mortgage company must comply with extensive state and federal laws and regulations, which are administered by numerous agencies, including but not limited to the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency, U.S. Department of Housing and Urban Development, FHA, VA, United States Department of Agriculture (USDA), Fannie Mae, Freddie Mac and Ginnie Mae. These laws and regulations include many compliance requirements, including but not limited to licensing, consumer disclosures, fair lending and real estate settlement procedures. As a result, our operations are subject to regular, extensive examinations by the applicable agencies.

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 operating income in the third and fourth quarters of our fiscal year. The seasonal nature of our business can also cause significant variations in our working capital requirements in our homebuilding, 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.

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ITEM 1A.    RISK FACTORS

Discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties we are or may become subject to, many of which are difficult to predict or beyond our control. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

Risks Related to our Business and our Industry

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

The U.S. and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk. In December 2019, C-19 emerged in the Wuhan region of China and subsequently spread worldwide. The World Health Organization declared C-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time. In almost all of the municipalities across the U.S. where we operate, residential construction and financial services have been deemed essential businesses as part of critical infrastructure, and we have continued our homebuilding, lot development and financial services operations in those markets where allowed. We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence. There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers. The extent to which C-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted. If C-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

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

The homebuilding and lot development industries are cyclical and are significantly affected by changes in general and local economic and real estate conditions, such as:

•employment levels;

•consumer confidence and spending;

•housing demand;

•availability of financing for homebuyers;

•interest rates;

•availability and prices of new homes for sale and alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes and rental properties; and

•demographic trends.

Adverse changes in these general and local economic conditions or deterioration in the broader economy would cause a negative impact on our business and financial results and increase the risk for asset impairments and writeoffs. Changes in these economic conditions may affect some of our regions or markets more than others. If adverse conditions affect our larger markets, they could have a proportionately greater impact on us than on some other homebuilding companies.

In the past, the federal government’s fiscal and trade policies and economic stimulus actions have created uncertainty in the financial markets and caused volatility in interest rates, which impacted business and consumer behavior. Monetary policy actions affecting interest rates or fiscal policy actions and new legislation related to taxation, spending levels or borrowing limits, along with the related political debates, conflicts and compromises associated with such actions, may negatively impact the financial markets and consumer confidence. Such events could hurt the U.S. economy and the housing market and in turn, could adversely affect the operating results of our businesses.

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Weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, volcanic activity, droughts and floods, heavy or prolonged precipitation or wildfires, can harm our business. These can delay our development work, home construction and home closings, adversely affect the cost or availability of materials or labor or damage homes under construction. The climates and geology of many of the states in which we operate, including California, Florida, Texas and other coastal areas, where we have some of our larger operations and which have experienced recent natural disasters, present increased risks of adverse weather or natural disasters.

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

If we experience any of the foregoing, potential customers may be less willing or able to buy our homes. In the future, our pricing and product strategies may also be limited by market conditions. We may be unable to change the mix of our home offerings, reduce the costs of the homes we build, offer more affordable homes or satisfactorily address changing market conditions in other ways without adversely affecting our profits and returns. In addition, cancellations of home sales contracts in backlog may increase if homebuyers do not honor their contracts due to any of the factors discussed above.

Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally to purchasers of the homes we build. A decrease in the demand for our homes because of the foregoing matters will also adversely affect the financial results of this segment of our business. An increase in the default rate on the mortgages we originate may adversely affect our ability to sell the mortgages or the pricing we receive upon the sale of mortgages or may increase our recourse obligations for previous originations. We may be responsible for losses associated with mortgage loans originated and sold to third-party purchasers in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of primary mortgage insurance, and the validity of certain borrower representations in the connection with the loan, and we may be required to repurchase certain of those mortgage loans or provide indemnification. Repurchased mortgage loans and/or the settlement of claims associated with such loans could adversely affect our business or financial results. We establish reserves for estimated losses and future repurchase obligations for mortgage loans we have sold; however, actual future obligations related to these mortgages could differ significantly from our current estimated amounts.

Constriction of the credit and public capital markets could limit our ability to access capital and increase our costs of capital.

During past economic and housing downturns, the credit markets constricted and reduced some sources of liquidity that were previously available to us. Consequently, we relied principally on our cash on hand to meet our working capital needs and repay outstanding indebtedness during those times. There likely will be periods in the future when financial market upheaval will increase our cost of capital or limit our ability to access the public debt markets or obtain bank financing.

Our homebuilding operations utilize a $1.59 billion 5-year senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments. Our 5-year homebuilding revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment. The maturity date of the 5-year facility is October 2, 2024. We also have a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments. The maturity date of the 364-day facility is May 27, 2021. Forestar and its subsidiaries, our financial services subsidiaries, and certain of our other subsidiaries are not guarantors under our homebuilding revolving credit facilities or our homebuilding senior notes.

Forestar has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments. The Forestar revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. The maturity date of the facility is October 2, 2022. The Forestar revolving credit facility is guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries. The Forestar revolving credit facility is not guaranteed by us or our other subsidiaries.

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Our mortgage subsidiary utilizes a $1.35 billion mortgage repurchase facility to finance the majority of the loans it originates. The capacity of the facility increased, without requiring additional commitments, to $1.575 billion for approximately 45 days around September 30, 2020 and increases again for approximately 30 days around December 31, 2020. The capacity can also be increased to $1.8 billion subject to the availability of additional commitments. The mortgage repurchase facility must be renewed annually and currently expires on February 19, 2021. We expect to renew and extend the term of the mortgage repurchase facility with similar terms prior to its maturity. Adverse changes in market conditions could make the renewal of these facilities more difficult or could result in an increase in the cost of these facilities or a decrease in the committed amounts. Such changes affecting our mortgage repurchase facility may also make it more difficult or costly to sell the mortgages that we originate.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, pay dividends, repurchase our common stock and support other general corporate and 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 SEC in August 2018, 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 September 2018, registering $500 million of equity securities. At September 30, 2020, $394.3 million remained available, and $100 million of this availability is reserved for sales under Forestar’s at-the-market equity offering program established in August 2020. 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 facility and ability to access the capital markets or obtain additional financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $400 million aggregate principal amount of our homebuilding senior notes in fiscal 2021. Adverse changes in economic, homebuilding or capital market conditions due to C-19 or otherwise could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

Reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates could decrease our buyers’ ability to obtain financing and adversely affect our business or financial results.

The mortgage loans originated by our financial services operations are primarily eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae and are typically sold to third-party purchasers. The secondary market for mortgage loans continues to primarily desire securities backed by Fannie Mae, Freddie Mac or Ginnie Mae, and we believe the liquidity these agencies provide to the mortgage industry is important to the housing market. Any significant change regarding the long-term structure and viability of Fannie Mae and Freddie Mac could result in adjustments to the size of their loan portfolios and to guidelines for their loan products. Additionally, a reduction in the availability of financing provided by these institutions could adversely affect interest rates, mortgage availability and sales of new homes and mortgage loans. During fiscal 2020, approximately 66% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae and 28% were sold to two other major financial entities. On an ongoing basis, we seek to establish loan purchase arrangements with additional financial entities. If we are unable to sell mortgage loans to purchasers on attractive terms, our ability to originate and sell mortgage loans at competitive prices could be limited, which would negatively affect our profitability.

The FHA insures mortgage loans that generally have lower credit requirements and is an important source for financing the sale of our homes. Changes, restrictions or significant premium increases in FHA programs in the future may negatively affect the availability or affordability of FHA financing, which could adversely affect our ability to sell homes.

Some of our customers may qualify for 100% financing through programs offered by the VA and the USDA and certain other housing finance agencies. These programs are subject to changes in regulations, lending standards and government funding levels. There can be no assurances that these programs or other programs will continue to be available in our homebuilding markets or that they will be as attractive to our customers as the programs currently offered, which could negatively affect our sales.

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Mortgage rates are currently low compared to most historical periods; however, market conditions could change causing mortgage rates to rise in the future. When interest rates increase, the cost of owning a home increases, which will likely reduce the number of potential homebuyers who can obtain mortgage financing and could result in a decline in the demand for our homes.

In the latter part of fiscal 2020, due to reduced liquidity in the secondary market related to remedies provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to borrowers of residential loans, we began retaining mortgage servicing rights on some of our originations. As servicer for these loans, we may have to advance payments to the mortgage-backed securities (MBS) bondholders to the extent there are insufficient collections to satisfy the required principal and interest remittances of the underlying mortgage-backed securities.

The risks associated with our land and lot inventory could adversely affect our business or financial results.

Inventory risks are substantial for our homebuilding and Forestar businesses. There are risks inherent in controlling, owning and developing land. If housing demand declines, we may not be able to build and sell homes profitably in some of our communities, and we may not be able to fully recover the costs of some of the land and lots we own. Also, the values of our owned undeveloped land, lots and housing inventories may fluctuate significantly due to changes in market conditions. As a result, our deposits for lots controlled under purchase contracts may be put at risk, we may have to sell homes or land for a lower profit margin or record inventory impairment charges on our land and lots. A significant deterioration in economic or homebuilding industry conditions may result in substantial inventory impairment charges.

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

In recent years, we have primarily grown our business by increasing our investments in land, lot and home inventories in our existing homebuilding markets. We have also expanded through investments in new product offerings, new geographic markets, and the growth of our multi-family rental property operations. Investments in land, lots, home inventories and rental properties can expose us to risks of economic loss and asset impairments if housing conditions weaken or if we are unsuccessful in implementing our growth strategies.

In October 2017, we acquired 75% of the outstanding shares of Forestar and at September 30, 2020, we owned 65% of its outstanding shares. Forestar is a publicly traded residential lot development company with operations in 49 markets across 21 states as of September 30, 2020. Forestar’s strategy is focused on making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S. lot development industry. Our homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies, and we provide Forestar certain administrative, compliance, operational and procurement services through a shared services agreement. As the controlling shareholder of Forestar, we strongly influence the strategic direction and operations of Forestar.

In addition to the investment and merger with Forestar, we have acquired the homebuilding operations of several homebuilding companies in recent years, and we may make strategic acquisitions of or investments in other companies, operations or assets in the future. Such acquisitions and investments may have risks similar to those related to land, lots and home inventories, but they may also expose us to additional risks or other negative consequences. These transactions may not advance our business strategy, provide a satisfactory return on our investment or provide other benefits we anticipate. Also, the integration of these transactions may not be successful and may require significant time and resources, which may divert management’s attention from other operations. Acquisitions and investments could also expose us to material liabilities not discovered in the due diligence process and may lead to litigation. If these transactions under-perform our expectations or are unsuccessful, we may incur significant expenses or write-offs of inventory, other assets or intangible assets such as goodwill. Acquisitions and investments can result in dilution to existing stockholders if we issue our common stock as consideration and can increase our debt levels or reduce our liquidity if we purchase them with cash. The magnitude, timing and nature of any future acquisitions or investments will depend on a number of factors, including our ability to identify suitable additional markets or acquisition candidates, the negotiation of acceptable terms, our financial position and general economic and business conditions. We also may seek to divest an investment or a business and may have difficulty selling such investment or business on acceptable terms in a timely manner.

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Our business and financial results could be adversely affected by significant inflation, higher interest rates or deflation.

Inflation can adversely affect us by increasing costs of land, materials and labor. In addition, significant inflation is often accompanied by higher interest rates, which have a negative impact on housing affordability. In a highly inflationary environment, depending on industry and other economic conditions, we may be precluded from raising home prices enough to keep up with the rate of inflation, which could reduce our profit margins. Moreover, in a highly inflationary environment, our cost of capital, labor and materials can increase and the purchasing power of our cash resources can decline, which could have an adverse impact on our business or financial results.

Alternatively, a significant period of deflation could cause a decrease in overall spending and borrowing levels. This could lead to deterioration in economic conditions, including an increase in the rate of unemployment. Deflation could also cause the value of our inventories to decline or reduce the value of existing homes below the related mortgage loan balance, which could potentially increase the supply of existing homes. If oil prices decline significantly, economic conditions in markets that have significant exposure to the energy sector may weaken. These, or other factors that increase the risk of significant deflation, could have a negative impact on our business or financial results.

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

We are subject to home warranty and construction defect claims arising in the ordinary course of our homebuilding business. We rely on subcontractors to perform the actual construction of our homes, and in many cases, to select and obtain construction materials. Despite our detailed specifications and monitoring of the construction process, our subcontractors occasionally do not meet adequate quality standards in the construction of our homes. When we find these issues, we repair them in accordance with our warranty obligations. We spend significant resources to repair items in homes we have sold to fulfill the warranties we issued to our homebuyers. Additionally, we are subject to construction defect claims which can be costly to defend and resolve in the legal system. Warranty and construction defect matters can also result in negative publicity in the media and on the internet, which can damage our reputation and adversely affect our ability to sell homes.

Based on the large number of homes we have sold over the years, our potential liabilities related to warranty and construction defect claims are significant. As a consequence, we maintain product liability insurance, and we seek to obtain indemnities and certificates of insurance from subcontractors covering claims related to their workmanship and materials. We establish warranty and other reserves for the homes we sell based on historical experience in our markets and our judgment of the qualitative risks associated with the types of homes built. Because of the uncertainties inherent to these matters, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will be adequate to address all of our future warranty and construction defect claims. Contractual indemnities can be difficult to enforce, we may be responsible for applicable self-insured retentions and some types of claims may not be covered by insurance or may exceed applicable coverage limits. Additionally, the coverage offered by and the availability of product liability insurance for construction defects is limited and costly. We have responded to increases in insurance costs and coverage limitations by increasing our self-insured retentions and claim reserves. There can be no assurance that coverage will not be further restricted or become more costly. If costs to resolve our future warranty and construction defect claims exceed our estimates, our financial results and liquidity could be adversely affected.

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

Building and land development sites are inherently dangerous, and operating in the homebuilding and lot development industries poses certain inherent health and safety risks. Due to health and safety regulatory requirements and the number of homes we construct, health and safety performance is critical to the success of our business. Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements, and a failure that results in a major or significant health and safety incident is likely to be costly and could expose us to liability that could be costly. Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our financial results and liquidity.

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Supply shortages and other risks related to acquiring land, building materials and skilled labor could increase our costs and delay deliveries.

The homebuilding and lot development industries have from time to time experienced significant difficulties that can affect the cost or timing of construction, including:

•difficulty in acquiring land suitable for residential building at affordable prices in locations where our potential customers want to live;

•shortages of qualified subcontractors;

•reliance on local subcontractors, manufacturers, distributors and land developers who may be inadequately capitalized;

•shortages of materials; and

•significant increases in the cost of materials, particularly increases in the price of lumber, drywall and cement, which are significant components of home construction costs.

In addition, tariffs, duties and/or trade restrictions imposed or increased on imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum and lumber, may raise our costs for these items or for the products made with them. These factors may cause construction delays or cause us to incur more costs building our homes. If the level of new home demand increases significantly in future periods, the risk of shortages and cost increases in residential lots, labor and materials available to the homebuilding industry will likely increase.

We are required to obtain performance bonds, the unavailability of which could adversely affect our results of operations and cash flows.

We often are required to provide surety bonds to secure our performance or obligations under construction contracts, development agreements and other arrangements. At September 30, 2020, we had $1.8 billion of outstanding surety bonds. Our ability to obtain surety bonds primarily depends upon our credit rating, financial condition, past performance and other factors, including the capacity of the surety market and the underwriting practices of surety bond issuers. The ability to obtain surety bonds also can be impacted by the willingness of insurance companies to issue performance bonds for construction and development activities. If we are unable to obtain surety bonds when required, our results of operations and cash flows could be adversely affected.

Increases in the costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Significant expenses of owning a home, including mortgage loan interest and state and local income and property taxes, have historically been deductible expenses for an individual’s federal income taxes, subject to various limitations. The Tax Cuts and Jobs Act, which became effective January 1, 2018, established new limits on these federal tax deductions that could reduce the actual or perceived affordability of homeownership. These or any further changes in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership, could adversely affect demand for and sales prices of new homes, especially in areas with relatively high housing prices or high taxes.

In addition, increases in property tax rates by local governmental authorities, as experienced in some areas in response to reduced federal and state funding, could adversely affect the amount of financing our potential customers could obtain or their desire to purchase new homes.

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Governmental regulations and environmental matters could increase the cost and limit the availability of our land development and homebuilding projects and adversely affect our business or financial results.

We are subject to extensive and complex regulations that affect land development and home construction, including zoning, density restrictions, building design and building standards. These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior to development or construction being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water or sewage facilities, roads or other local services. New housing developments may also be subject to various assessments for schools, parks, streets and other public improvements. In addition, in many markets government authorities have implemented no growth or growth control initiatives. Any of these may limit, delay or increase the costs of development or home construction.

We are also subject to a significant number and variety of local, state and federal laws and regulations concerning protection of health, safety, labor standards and the environment. The impact of environmental laws varies depending upon the prior uses of the building site or adjoining properties and may be greater in areas with less supply where undeveloped land or desirable alternatives are less available. These matters may result in delays, may cause us to incur substantial compliance, remediation, mitigation and other costs, and can prohibit or severely restrict development and homebuilding activity in environmentally sensitive regions or areas. Government agencies also routinely initiate audits, reviews or investigations of our business practices to ensure compliance with these laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. For example, we have received Notices of Violation from the United States Environmental Protection Agency related to stormwater compliance at certain of our sites in our Southeast region. This matter could potentially result in requirements for us to perform additional compliance procedures and to pay monetary sanctions.

Government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our profit margins and adversely affect our results of operations. This is a particular concern in the western United States, where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted, and where we have business operations.

The subcontractors we rely on to perform the actual construction of our homes are also subject to a significant number of local, state and federal laws and regulations, including laws involving matters that are not within our control. If the subcontractors who construct our homes fail to comply with all applicable laws, we can suffer reputational damage, and may be exposed to possible liability.

We are also subject to an extensive number of laws and regulations because our common stock and debt securities and the common stock of our Forestar subsidiary are publicly traded in the capital markets. These regulations govern our communications with our shareholders and the capital markets, our financial statement disclosures and our legal processes, and they also impact the work required to be performed by our independent registered public accounting firm and our legal counsel. Changes in these laws and regulations, including the subsequent implementation of rules by the administering government authorities, may require us to incur additional compliance costs, and such costs may be significant.

Governmental regulation of our financial services operations could adversely affect our business or financial results.

Our financial services operations are subject to extensive state and federal laws and regulations, which are administered by numerous agencies, including but not limited to the CFPB, Federal Housing Finance Agency, U.S. Department of Housing and Urban Development, FHA, VA, USDA, Fannie Mae, Freddie Mac and Ginnie Mae. These laws and regulations include many compliance requirements, including but not limited to licensing, consumer disclosures, fair lending and real estate settlement procedures. As a result, our operations are subject to regular, extensive examinations by the applicable agencies. Additional future regulations or changing rule interpretations and examinations by regulatory agencies may result in more stringent compliance standards and could adversely affect the results of our operations.

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Homebuilding, lot development and financial services are competitive industries, and competitive conditions could adversely affect our business or financial results.

The homebuilding and lot development industries are highly competitive. Homebuilders compete not only for homebuyers, but also for desirable properties, financing, raw materials and skilled labor. We compete with local, regional and national homebuilders and developers, and also with existing home sales, foreclosures and rental properties. The competitive conditions in the homebuilding industry can negatively affect our sales volumes, selling prices and incentive levels, reduce our profit margins, and cause the value of our inventory or other assets to be impaired. Competition can also affect our ability to acquire suitable land, raw materials and skilled labor at acceptable prices or terms, or cause delays in land development or in the construction of our homes.

The competitors to our financial services businesses include other title companies and mortgage lenders, including national, regional and local mortgage banks and other financial institutions. Some of these competitors are subject to fewer governmental regulations and have greater access to capital than we do, and some of them may operate with different lending criteria than we do. These competitors may offer a broader or more attractive array of financing and other products and services to potential customers than we do.

Our businesses compete with other companies across all industries to attract and retain highly skilled and experienced employees, managers and executives. Competition for the services of these individuals increases as business conditions improve in the homebuilding, lot development and financial services industries and in the general economy. If we are unable to attract and retain key employees, managers or executives, our business could be adversely affected.

Risks Related to our Indebtedness

We have significant amounts of debt and may incur additional debt, which could affect our financial health and our ability to raise additional capital to fund our operations or potential acquisitions.

As of September 30, 2020, our consolidated debt was $4.3 billion, which consisted of $2.5 billion related to our homebuilding segment, $1.1 billion related to our financial services segment and $641.1 million related to our Forestar segment. We had $1.6 billion principal amount of our debt maturing before the end of fiscal 2021, including $400 million principal amount of homebuilding senior notes and $1.1 billion outstanding under the mortgage repurchase facility. The indentures governing our homebuilding senior notes do not restrict the incurrence of future unsecured debt by us or our homebuilding subsidiaries or the incurrence of secured or unsecured debt by our non-guarantor subsidiaries, and the agreements governing our homebuilding revolving credit facilities allow us to incur a substantial amount of future unsecured debt. Also, the indentures governing our homebuilding senior notes and the agreements governing our homebuilding revolving credit facilities impose restrictions on our ability and on that of the guarantors under our homebuilding senior notes and our homebuilding revolving credit facilities to incur debt secured by certain assets, but still permit us and our homebuilding subsidiaries to incur significant amounts of additional secured debt. The Forestar revolving credit facility and the indentures governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

The amount and the maturities of our debt and the debt of our subsidiaries could have important consequences. For example, possible consequences for our homebuilding, financial services and Forestar operations each with respect to their individual debt obligations, could:

•require the dedication of a substantial portion of cash flow from operations to payment of debt and reduce the ability to use cash flow for other operating or investing purposes;

•limit the flexibility to adjust to changes in business or economic conditions; and

•limit the ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements or other requirements.

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

Our ability and that of our subsidiaries to meet our respective debt service obligations will depend, in part, upon our and our subsidiaries’ future financial performance. Future results are subject to the risks and uncertainties described in this report. Our revenues and earnings vary with the level of general economic activity in the markets we serve. Our businesses are also affected by financial, political, business and other factors, many of which are beyond our control. The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposes through the sale of debt or equity, the refinancing of debt or the sale of assets. Changes in prevailing interest rates may affect the cost of our debt service obligations, because borrowings under our revolving credit facilities and mortgage repurchase facility bear interest at floating rates.

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

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

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

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

Homebuilding revolving credit facilities. Our homebuilding revolving credit facilities contain financial covenants requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facilities or cause any outstanding borrowings to become due and payable prior to maturity.

Forestar’s revolving credit facility. The Forestar revolving credit facility contains financial covenants requiring the maintenance by Forestar of a minimum level of tangible net worth, a minimum level of liquidity, a maximum allowable leverage ratio and a borrowing base restriction based on the book value of Forestar’s real estate assets and unrestricted cash. A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under this revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

Mortgage repurchase facility and other restrictions. The mortgage repurchase facility for our mortgage subsidiary requires the maintenance of a minimum level of tangible net worth, a maximum allowable leverage ratio and a minimum level of liquidity by our mortgage subsidiary. A failure to comply with these requirements could allow the lending banks to terminate the availability of funds to our mortgage subsidiary or cause any outstanding borrowings to become due and payable prior to maturity. Any difficulty experienced in complying with these covenants could make the renewal of the facility more difficult or costly.

In addition, although our financial services business is conducted through subsidiaries that are not restricted by the indentures governing our senior notes or the agreements governing our revolving credit facilities, the ability of our financial services subsidiaries to distribute funds to our homebuilding operations would be restricted in the event such distribution would cause an event of default under the mortgage repurchase facility or if an event of default had occurred

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under this facility. Moreover, our right to receive assets from our financial services subsidiaries upon their liquidation or recapitalization is subject to the prior claims of the creditors of these subsidiaries. Any claims we may have to funds from our financial services subsidiaries would be subordinate to subsidiary indebtedness to the extent of any security for such indebtedness and to any indebtedness otherwise recognized as senior to our claims.

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

Our homebuilding senior unsecured debt is currently rated investment grade by all three major rating agencies; however, there can be no assurance that we will be able to maintain these ratings. Any lowering of our debt ratings could make accessing the public capital markets or obtaining additional credit from banks more difficult and/or more expensive. Any lowering of Forestar’s debt ratings could also make Forestar’s ability to access the public capital markets or obtain additional credit from banks more difficult and/or more expensive.

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

Change of control purchase options under our homebuilding senior notes and change of control default under our homebuilding revolving credit facilities. Upon the occurrence of both a change of control and a ratings downgrade event, each as defined in the indentures governing our homebuilding senior notes, we will be required to offer to repurchase such notes at 101% of their principal amount, together with all accrued and unpaid interest, if any. Moreover, a change of control (as defined in our homebuilding revolving credit facilities) would constitute an event of default under our homebuilding revolving credit facilities, which could result in the acceleration of the repayment of any borrowings outstanding under the facilities, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder. If repayment of more than $50 million outstanding under our homebuilding revolving credit facilities were accelerated and such acceleration were not rescinded or such indebtedness were not satisfied, in either case within 30 days, an event of default would result under the indentures governing our homebuilding senior notes, entitling the trustee for the notes or holders of at least 25% in principal amount of the relevant series of notes then outstanding to declare all such notes to be due and payable immediately. If purchase offers were required under the indentures for our homebuilding senior notes, repayment of the borrowings under our homebuilding revolving credit facilities were required, or if the senior notes were accelerated, we can give no assurance that we would have sufficient funds to pay the required amounts.

Change of control purchase option under Forestar’s notes and change of control default under the Forestar revolving credit facility. Upon the occurrence of a change of control triggering event (as defined in the indentures governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any. A change of control (as defined in the Forestar revolving credit facility) with respect to Forestar would constitute an event of default under the Forestar revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder. If the maturity of the Forestar revolving credit facility and/or other indebtedness of Forestar and its restricted subsidiaries together having an aggregate principal amount outstanding of $40 million or more is accelerated, an event of default would result under the indentures governing the Forestar notes, entitling the trustee for the Forestar notes or holders of at least 25% in aggregate principal amount of the then outstanding Forestar notes to declare all such Forestar notes to be due and payable immediately. If purchase offers were required under the indentures for Forestar’s notes, repayment of the borrowings under Forestar’s revolving credit facility were required, or if Forestar’s notes were accelerated, we can give no assurance that Forestar would have sufficient funds to pay the required amounts.

General Risk Factors

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

Adverse publicity related to our company, industry, personnel, operations or business performance may cause damage to our corporate reputation or brands and may generate negative sentiment, potentially affecting the performance of our business or our stock price, regardless of its accuracy or inaccuracy. Negative publicity can be disseminated rapidly through digital platforms, including social media, websites, blogs and newsletters. Customers and other interested parties value readily available information and often act on such information without further investigation and without

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regard to its accuracy. The harm may be immediate without affording us an opportunity for redress or correction, and our success in preserving our brand image depends on our ability to recognize, respond to and effectively manage negative publicity in a rapidly changing environment. Adverse publicity or unfavorable commentary from any source could damage our reputation, reduce the demand for our homes or negatively impact the morale and performance of our employees, which could adversely affect our business.

Our business could be adversely affected by the loss of key personnel.

We rely on our key personnel to effectively operate and manage our businesses. Specifically, our success depends heavily on the performance of our homebuilding division and region presidents and their management teams, our financial services management team, our corporate office management teams, our Forestar management team and our executive officers. These key personnel have significant experience and skills in the homebuilding, lot development and financial services industries, as well as leadership and management abilities that are important to our success. We seek to retain our key personnel and to have succession plans in place to address the potential loss of key personnel. However, if our retention and succession planning efforts are unsuccessful or if we fail to attract suitable replacements, the loss of key personnel could adversely affect our business.

Information technology failures, data security breaches, and the failure to satisfy privacy and data protection laws and regulations could harm our business.

We use information technology and other computer resources to carry out important operational and marketing activities and to maintain our business records. These information technology systems are dependent upon global communications providers, web browsers, third-party software and data storage providers and other aspects of the Internet infrastructure that have experienced security breaches, cyber-attacks, significant systems failures and service outages in the past. Our normal business activities involve collecting and storing information specific to our homebuyers, employees, vendors and suppliers and maintaining operational and financial information related to our business, both in an office setting and remote locations as needed. A material breach in the security of our information technology systems or other data security controls could include the theft or release of this information. A data security breach, a significant and extended disruption in the functioning of our information technology systems or a breach of any of our data security controls could disrupt our business operations, damage our reputation and cause us to lose customers, adversely impact our sales and revenue and require us to incur significant expense to address and remediate or otherwise resolve these kinds of issues. The unintended or unauthorized disclosure of personal identifying and confidential information as a result of a security breach could also lead to litigation or other proceedings against us by the affected individuals or business partners, or by regulators. The outcome of such proceedings, which could include penalties or fines, could have a significant negative impact on our business.

We may also be required to incur significant costs to protect against damages caused by information technology failures, security breaches, and the failure to satisfy privacy and data protection laws and regulations in the future as legal requirements continue to increase. The European Union and other international regulators, as well as state governments, have recently enacted or enhanced data privacy regulations, such as the California Consumer Privacy Act, and other governments are considering establishing similar or stronger protections. These regulations impose certain obligations for handling specified personal information in our systems, and for apprising individuals of the information we have collected about them. We have incurred costs in an effort to comply with these requirements, and our costs may increase significantly if new requirements are enacted and based on how individuals exercise their rights. Any noncompliance could result in our incurring substantial penalties and reputational damage, and also could result in litigation.

We provide employee awareness training of cybersecurity threats and routinely utilize information technology security experts to assist us in our evaluations of the effectiveness of the security of our information technology systems, and we regularly enhance our security measures to protect our systems and data. Our increased use of remote work environments and virtual platforms in response to C-19 may also increase our risk of cyber-attack or data security breaches. We use various encryption, tokenization and authentication technologies to mitigate cybersecurity risks and have increased our monitoring capabilities to enhance early detection and rapid response to potential cyber threats. However, because the techniques used to obtain unauthorized access, disable or degrade systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Consequently, we cannot provide assurances that a security breach, cyber-attack, data theft or other significant systems or security failures will not occur in the future, and such occurrences could have a material and adverse effect on our consolidated results of operations or financial position.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.

ITEM 2.    PROPERTIES

Our homebuilding and Forestar operations own inventories of land, lots and homes, and DHI Communities owns multi-family rental properties that are both completed and under construction as part of the ordinary course of our business. We also own office buildings totaling approximately 1.1 million square feet, and we lease approximately 570,000 square feet of office space under leases expiring through February 2026. These properties are located in our various operating markets to house our homebuilding, Forestar and financial services operating divisions and our regional and corporate offices.

We own ranch land and improvements totaling 93,600 acres, most of which has been owned for approximately 20 years. We use this land to conduct ranching and agricultural activities and to host company meetings and events.

ITEM 3.    LEGAL PROCEEDINGS

We are involved in lawsuits and other contingencies in the ordinary course of business. While the outcome of such contingencies cannot be predicted with certainty, we believe that the liabilities arising from these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds our estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.

In fiscal 2013, our mortgage subsidiary was subpoenaed by the United States Department of Justice (DOJ) regarding the adequacy of certain underwriting and quality control processes related to Federal Housing Administration loans originated and sold in prior years. We have provided information related to these loans and our processes to the DOJ, and communications are ongoing. The DOJ has to date not asserted any formal claim amount, penalty or fine.

In May and July of 2014, we received Notices of Violation from the United States Environmental Protection Agency (EPA) related to stormwater compliance at certain of our sites in our Southeast region. This matter could potentially result in monetary sanctions to the Company; however, we do not believe it is reasonably possible that this matter would result in a loss that would have a material effect on our consolidated financial position, results of operations or cash flows.

We are participating in settlement discussions with the U.S. Army Corps of Engineers (ACOE) and DOJ concerning alleged violations of the wetlands provisions of the Clean Water Act at a development site in our Southeast region relating to a violation notice the ACOE issued in April 2017. This matter could potentially result in a settlement that includes a penalty of approximately $350,000 without an admission of liability. We do not believe it is reasonably possible that this matter will result in a loss that would have a material effect on our consolidated financial position, results of operations or cash flows.

With respect to administrative or judicial proceedings involving the environment, we have determined that in future filings we will disclose any such proceeding if we reasonably believe such proceeding will result in monetary sanctions, exclusive of interest and costs, at or in excess of $1 million. We believe that such threshold is reasonably designed to result in disclosure of environmental proceedings that are material to our business or financial condition.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

In November 2020, our Board of Directors approved a quarterly cash dividend of $0.20 per common share, payable on December 14, 2020, to stockholders of record on December 4, 2020. 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.

We may repurchase shares of our common stock from time to time pursuant to our $1.0 billion common stock repurchase authorization, which was approved by our Board of Directors effective July 30, 2019 and has no expiration date. During fiscal 2020, we purchased 7.0 million shares of our common stock for $360.4 million, none of which were purchased in the three months ended September 30, 2020. All share repurchases were made in accordance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (Exchange Act). At September 30, 2020, our remaining stock repurchase authorization was $535.3 million.

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

The information required by this item with respect to equity compensation plans is set forth under Item 12 of this annual report on Form 10-K and is incorporated herein by reference.

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Stock Performance Graph

The following graph illustrates the cumulative total stockholder return on D.R. Horton common stock for the last five fiscal years through September 30, 2020, compared to the S&P 500 Index and the S&P 1500 Homebuilding Index. The comparison assumes a hypothetical investment in D.R. Horton common stock and in each of the foregoing indices of $100 at September 30, 2015 and assumes that all dividends were reinvested. Shareholder returns over the indicated period are based on historical data and should not be considered indicative of future shareholder returns. The graph and related disclosure in no way reflect our forecast of future financial performance.

Comparison of Five-Year Cumulative Total Return

Among D.R. Horton, Inc., S&P 500 Index and S&P 1500 Homebuilding Index

	Year Ended September 30,
	2015		2016		2017		2018		2019		2020
D.R. Horton, Inc.	$	100.00	$	103.97	$	139.22	$	148.68	$	188.55	$	273.89
S&P 500 Index	100.00		115.43		136.91		161.43		168.30		193.80
S&P 1500 Homebuilding Index	100.00		99.41		137.60		130.15		174.76		232.77

This performance graph shall not be deemed to be incorporated by reference into our SEC filings and should not constitute soliciting material or otherwise be considered filed under the Securities Act or the Exchange Act.

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ITEM 6.    SELECTED FINANCIAL DATA

The following selected financial data are derived from our consolidated financial statements and should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” Item 1A, “Risk Factors,” Item 8, “Financial Statements and Supplementary Data,” and all other financial data contained in this annual report on Form 10-K. These historical results are not necessarily indicative of the results to be expected in the future.

	Year Ended September 30,
	2020		2019		2018		2017		2016
			(In millions, except per share data)
Consolidated Operating Data:
Revenues	$	20,311.1	$	17,592.9	$	16,068.0	$	14,091.0	$	12,157.4
Cost of sales	15,373.2		13,720.9		12,398.1		11,042.8		9,502.6
Selling, general and administrative expense	2,047.8		1,832.5		1,676.8		1,471.6		1,320.3
Income before income taxes	2,983.0		2,125.3		2,060.0		1,602.1		1,353.5
Income tax expense	602.5		506.7		597.7		563.7		467.2
Net income attributable to D.R. Horton, Inc.	2,373.7		1,618.5		1,460.3		1,038.4		886.3
Net income per common share attributable to D.R. Horton, Inc.:
Basic	6.49		4.34		3.88		2.77		2.39
Diluted	6.41		4.29		3.81		2.74		2.36
Cash dividends declared per common share	0.70		0.60		0.50		0.40		0.32

	September 30,
	2020		2019		2018		2017		2016
	(In millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	3,018.5	$	1,494.3	$	1,473.1	$	1,007.8	$	1,303.2
Inventories	12,237.4		11,282.0		10,395.0		9,237.1		8,340.9
Total assets	18,912.3		15,606.6		14,114.6		12,184.6		11,558.9
Notes payable	4,283.3		3,399.4		3,203.5		2,871.6		3,271.3
Total liabilities	6,790.8		5,311.5		4,955.7		4,437.0		4,765.9
Stockholders’ equity	11,840.0		10,020.9		8,984.4		7,747.1		6,792.5
Total equity	12,121.5		10,295.1		9,158.9		7,747.6		6,793.0

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations — Overview

Fiscal 2020 Operating Results

In fiscal 2020, our number of homes closed and home sales revenues increased 15% and 16%, respectively, compared to the prior year, and our consolidated revenues increased 15% to $20.3 billion compared to $17.6 billion in the prior year. Our pre-tax income was $3.0 billion in fiscal 2020 compared to $2.1 billion in fiscal 2019, and our pre-tax operating margin was 14.7% compared to 12.1%. Net income was $2.4 billion in fiscal 2020 compared to $1.6 billion in the prior year. The current year results include a tax benefit of $93.4 million related to the retroactive reinstatement of the federal energy efficient homes tax credit.

Cash provided by our homebuilding operations was $1.9 billion in fiscal 2020 compared to $1.4 billion in fiscal 2019. In fiscal 2020, our return on equity (ROE) was 22.1% compared to 17.2% in fiscal 2019, and our homebuilding return on inventory (ROI) was 24.6% compared to 18.1%. ROE is calculated as net income attributable to D.R. Horton for the year 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 year divided by average inventory, where average inventory is the sum of ending homebuilding inventory balances for the trailing five quarters divided by five.

Within our homebuilding land and lot portfolio, our lots controlled under purchase contracts represent 70% of the lots owned and controlled at September 30, 2020 compared to 60% at September 30, 2019. Our relationship with Forestar and expanded relationships with other land developers across the country have allowed us to increase the controlled portion of our finished lot pipeline.

COVID-19

During the latter part of March 2020, the impacts of C-19 and the related widespread reductions in economic activity across the United States began to adversely affect our business. However, residential construction and financial services were designated as essential businesses in almost all of our markets, which allowed us to continue to operate during that time. We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

During April 2020 when restrictive stay-at-home orders were in place for many markets across the United States, we experienced increases in sales cancellations and decreases in sales orders, and net sales orders for April were 1% lower than the same month in the prior year. However, as economic activity began to resume and restrictive orders began to be lifted, our weekly sales pace increased significantly, and our cancellation rate returned to normal levels. For the third and fourth quarters of fiscal 2020, our net sales orders increased by 38% and 81%, respectively, compared to the prior year quarters.

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

However, even with the resurgence of demand in our third and fourth quarters, we remain cautious as to the ongoing impact of C-19 on our operations and on the overall economy. There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S. economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers. The extent to which this impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

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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 enhancing long-term value to our shareholders by leveraging our financial and competitive position in our core homebuilding business to increase the returns on our inventory investments and generate strong profitability and cash flows, while managing risk and maintaining financial flexibility to navigate changing economic conditions and make opportunistic strategic investments. We have made operational adjustments as a result of C-19; however, our strategy remains consistent and 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 strong cash balance and overall liquidity position and 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 sales 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 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.

•Continuing to seek opportunities to expand the portion of our land and finished lots controlled through purchase contracts by assisting Forestar with its operations and expanding our relationships with land developers across the country.

•Controlling the cost of goods purchased from both 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.

•Opportunistically evaluating potential acquisitions to enhance our operations and improve returns.

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

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

We believe our operating strategy, which has produced positive results in recent years, will allow us to successfully operate through changing economic conditions to maintain and improve our financial 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 components of our strategy to meet future market conditions.

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Key Results

Key financial results as of and for our fiscal year ended September 30, 2020, as compared to fiscal 2019, were as follows:

Homebuilding:

•Homebuilding revenues increased 15% to $19.6 billion compared to $17.0 billion.

•Homes closed increased 15% to 65,388 homes, and the average closing price of those homes was $299,100.

•Net sales orders increased 39% to 78,458 homes, and the value of net sales orders increased 40% to $23.6 billion.

•Sales order backlog increased 96% to 26,683 homes, and the value of sales order backlog increased 98% to $8.2 billion.

•Home sales gross margin was 21.8% compared to 20.2%.

•Homebuilding SG&A expense was 8.2% of homebuilding revenues compared to 8.7%.

•Homebuilding pre-tax income was $2.7 billion compared to $1.9 billion.

•Homebuilding pre-tax income was 13.6% of homebuilding revenues compared to 11.2%.

•Homebuilding return on inventory was 24.6% compared to 18.1%.

•Cash provided by homebuilding operations was $1.9 billion compared to $1.4 billion.

•Homebuilding cash and cash equivalents totaled $2.6 billion compared to $1.0 billion.

•Homebuilding inventories totaled $11.0 billion compared to $10.3 billion.

•Homes in inventory totaled 38,000 compared to 27,700.

•Owned lots totaled 112,600 compared to 121,400, and lots controlled through purchase contracts increased to 264,300 from 185,900.

•Homebuilding debt was $2.5 billion compared to $2.0 billion.

•Homebuilding debt to total capital was 17.5% compared to 17.0%.

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Forestar:

•Forestar’s revenues increased 118% to $931.8 million compared to $428.3 million. Revenues in fiscal 2020 and 2019 included $887.4 million and $326.6 million, respectively, of revenue from land and lot sales to our homebuilding segment.

•Forestar’s lots sold increased 151% to 10,373 compared to 4,132. Lots sold to D.R. Horton totaled 10,164 compared to 3,728.

•Forestar’s pre-tax income was $78.1 million compared to $45.7 million.

•Forestar’s pre-tax income was 8.4% of Forestar revenues compared to 10.7%.

•Forestar’s cash and cash equivalents totaled $394.3 million compared to $382.8 million.

•Forestar’s inventories totaled $1.3 billion compared to $1.0 billion.

•Forestar’s owned and controlled lots totaled 60,500 compared to 38,300. Of these lots, 30,400 were under contract to sell to or subject to a right of first offer with D.R. Horton compared to 23,400.

•Forestar’s debt was $641.1 million compared to $460.5 million.

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

Financial Services:

•Financial services revenues increased 32% to $584.9 million compared to $441.7 million.

•Financial services pre-tax income increased 47% to $245.2 million compared to $166.3 million.

•Financial services pre-tax income was 41.9% of financial services revenues compared to 37.6%.

Consolidated Results:

•Consolidated pre-tax income increased 40% to $3.0 billion compared to $2.1 billion.

•Consolidated pre-tax income was 14.7% of consolidated revenues compared to 12.1%.

•Income tax expense was $602.5 million compared to $506.7 million.

•Net income attributable to D.R. Horton increased 47% to $2.4 billion compared to $1.6 billion.

•Diluted net income per common share attributable to D.R. Horton increased 49% to $6.41 compared to $4.29.

•Cash provided by operations was $1.4 billion compared to $892.1 million.

•Stockholders’ equity was $11.8 billion compared to $10.0 billion.

•Book value per common share increased to $32.53 compared to $27.20.

•Debt to total capital was 26.6% compared to 25.3%.

31

Results of Operations — Homebuilding

Our operating segments are our 53 homebuilding divisions, our majority-owned Forestar lot development operations, our financial services operations and our other business activities. The homebuilding operating segments are aggregated into six reporting segments. These reporting segments, which we also refer to as reporting regions, 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 following tables and related discussion set forth key operating and financial data for our homebuilding operations by reporting segment as of and for the fiscal years ended September 30, 2020 and 2019. For similar operating and financial data and discussion of our fiscal 2019 results compared to our fiscal 2018 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2019, which was filed with the SEC on November 25, 2019.

	Net Sales Orders (1)
	Year Ended September 30,
	Net Homes Sold				Value (In millions)						Average Selling Price
	2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East	10,621	7,941	34	%	$	3,202.1	$	2,291.1	40	%	$	301,500	$	288,500	5	%
Midwest	5,010	3,224	55	%	1,794.8		1,127.8		59	%	358,200		349,800		2	%
Southeast	25,216	18,609	36	%	6,995.1		5,011.2		40	%	277,400		269,300		3	%
South Central	23,289	16,278	43	%	5,978.5		4,123.5		45	%	256,700		253,300		1	%
Southwest	4,180	2,797	49	%	1,219.0		750.6		62	%	291,600		268,400		9	%
West	10,142	7,716	31	%	4,416.8		3,539.2		25	%	435,500		458,700		(5)	%
	78,458	56,565	39	%	$	23,606.3	$	16,843.4	40	%	$	300,900	$	297,800	1	%

_____________

(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.

	Sales Order Cancellations
	Year Ended September 30,
	Cancelled Sales Orders		Value (In millions)				Cancellation Rate (1)
	2020	2019	2020		2019		2020		2019
East	2,722	2,155	$	779.6	$	607.3	20	%	21	%
Midwest	1,027	680	338.0		229.2		17	%	17	%
Southeast	6,750	5,410	1,856.8		1,444.4		21	%	23	%
South Central	6,140	4,751	1,583.6		1,193.2		21	%	23	%
Southwest	899	969	253.2		247.0		18	%	26	%
West	1,628	1,323	717.7		614.0		14	%	15	%
	19,166	15,288	$	5,528.9	$	4,335.1	20	%	21	%

_____________

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

32

Net Sales Orders

The number of net sales orders increased 39% during 2020 compared to 2019, with significant increases in all of our regions. The value of net sales orders increased 40% to $23.6 billion (78,458 homes) in 2020 from $16.8 billion (56,565 homes) in 2019. The average selling price of net sales orders during fiscal 2020 was $300,900, up 1% from the prior year.

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

Our sales order cancellation rate (cancelled sales orders divided by gross sales orders for the period) was 20% in 2020 compared to 21% in 2019.

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

	Sales Order Backlog
	As of September 30,
	Homes in Backlog				Value (In millions)						Average Selling Price
	2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East	3,583	1,916	87	%	$	1,137.4	$	576.1	97	%	$	317,400	$	300,700	6	%
Midwest	2,016	1,063	90	%	731.5		364.7		101	%	362,800		343,100		6	%
Southeast	8,256	4,277	93	%	2,378.5		1,219.5		95	%	288,100		285,100		1	%
South Central	7,913	4,166	90	%	2,076.9		1,084.0		92	%	262,500		260,200		1	%
Southwest	2,005	815	146	%	596.2		241.6		147	%	297,400		296,400		—	%
West	2,910	1,376	111	%	1,265.1		654.2		93	%	434,700		475,400		(9)	%
	26,683	13,613	96	%	$	8,185.6	$	4,140.1	98	%	$	306,800	$	304,100	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
	Year Ended September 30,
	Homes Closed				Value (In millions)						Average Selling Price
	2020	2019	% Change		2020		2019		% Change		2020		2019		% Change
East	8,954	7,928	13	%	$	2,640.8	$	2,285.0	16	%	$	294,900	$	288,200	2	%
Midwest	4,057	3,193	27	%	1,428.0		1,113.8		28	%	352,000		348,800		1	%
Southeast	21,237	18,553	14	%	5,836.1		4,964.0		18	%	274,800		267,600		3	%
South Central	19,542	16,604	18	%	4,985.6		4,191.3		19	%	255,100		252,400		1	%
Southwest	2,990	2,910	3	%	864.4		760.6		14	%	289,100		261,400		11	%
West	8,608	7,787	11	%	3,805.9		3,610.3		5	%	442,100		463,600		(5)	%
	65,388	56,975	15	%	$	19,560.8	$	16,925.0	16	%	$	299,100	$	297,100	1	%

33

Home Sales Revenue

Revenues from home sales increased 16% to $19.6 billion (65,388 homes closed) in 2020 from $16.9 billion (56,975 homes closed) in 2019. Home sales revenues increased in all of our regions primarily due to an increase in the number of homes closed.

The number of homes closed in fiscal 2020 increased 15% from 2019. The markets contributing most to the increase in closing volumes in our regions were as follows: the New Jersey, Myrtle Beach and Charlotte markets in the East; the Denver and Indianapolis markets in the Midwest; the Florida markets (particularly Tampa) in the Southeast; the Houston, Dallas and San Antonio markets in the South Central; the Tucson market in the Southwest; and the Portland and Southern California markets in the West.

Homebuilding Operating Margin Analysis

	Percentages of Related Revenues
	Year Ended September 30,
	2020		2019
Gross profit — home sales	21.8	%	20.2	%
Gross profit — land/lot sales and other	29.8	%	18.3	%
Inventory and land option charges	(0.1)	%	(0.3)	%
Gross profit — total homebuilding	21.7	%	19.9	%
Selling, general and administrative expense	8.2	%	8.7	%
Other (income)	(0.1)	%	(0.1)	%
Homebuilding pre-tax income	13.6	%	11.2	%

Home Sales Gross Profit

Gross profit from home sales increased to $4.3 billion in 2020 from $3.4 billion in 2019 and increased 160 basis points to 21.8% as a percentage of home sales revenues. The percentage increase resulted from improvements of 150 basis points due to a decrease in the average cost of our homes closed while the average selling price increased slightly, 20 basis points from a decrease in the amount of purchase accounting adjustments related to prior year acquisitions and 10 basis points due to a decrease in the amortization of capitalized interest, partially offset by increased warranty and construction defect costs of 20 basis points.

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. These actions could cause our gross profit margins to fluctuate in future periods. If a prolonged economic recession and a resulting decline in new home demand occur due to C-19 or otherwise, we would expect our gross profit margins to decline from current levels.

Land/Lot Sales and Other Revenues

Land/lot sales and other revenues from our homebuilding operations were $83.1 million and $91.9 million in fiscal 2020 and 2019, 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 September 30, 2020, our homebuilding operations had $28.3 million of land held for sale that we expect to sell in the next twelve months.

34

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 of September 30, 2020, we performed detailed impairment evaluations of communities with a combined carrying value of $36.1 million and determined that no communities were impaired. Homebuilding impairment charges during fiscal 2020 and 2019 were $1.7 million and $24.9 million, respectively.

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 due to C-19 or otherwise, we may be required to evaluate additional communities for potential impairment. These evaluations could result in additional impairment charges that could be significant.

During fiscal 2020 and 2019, earnest money and pre-acquisition cost write-offs related to land purchase contracts that we have terminated or expect to terminate were $21.2 million and $28.3 million, respectively.

Selling, General and Administrative (SG&A) Expense

SG&A expense from homebuilding activities increased 8% to $1.6 billion in fiscal 2020 from $1.5 billion in fiscal 2019. SG&A expense as a percentage of homebuilding revenues was 8.2% and 8.7% in fiscal 2020 and 2019, respectively.

Employee compensation and related costs represented 75% of SG&A costs in fiscal 2020 compared to 72% in fiscal 2019. These costs increased 13% to $1.2 billion in 2020 from $1.1 billion in 2019. Our homebuilding operations employed 7,281 and 6,810 employees at September 30, 2020 and 2019, respectively.

We attempt to control our 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 11% to $93.0 million in fiscal 2020 from $104.7 million in fiscal 2019. The decrease was due to lower average interest rates on our homebuilding debt, as well as a 2% decrease in our average homebuilding debt in fiscal 2020 compared to the prior year. Interest charged to cost of sales was 0.8% and 0.9% of total cost of sales (excluding inventory and land option charges) in fiscal 2020 and 2019, respectively.

Other Income

Other income, net of other expenses, included in our homebuilding operations was $11.7 million in fiscal 2020 compared to $9.5 million in fiscal 2019. Other income consists of interest income, rental 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.

Business Acquisition

In October 2020, we acquired the homebuilding operations of Braselton Homes for approximately $23 million in cash. Braselton Homes operates in Corpus Christi, Texas. The assets acquired included approximately 90 homes in inventory, 95 lots and control of approximately 840 additional lots through purchase contracts. We also acquired a sales order backlog of approximately 125 homes.

35

Homebuilding Results by Reporting Region

	Year Ended September 30,
	2020						2019
	Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues		Homebuilding Revenues		Homebuilding Pre-tax Income (1)		% of Revenues
	(In millions)
East	$	2,642.3	$	357.0	13.5	%	$	2,290.2	$	238.8	10.4	%
Midwest	1,429.0		128.8		9.0	%	1,123.1		57.7		5.1	%
Southeast	5,845.2		841.0		14.4	%	4,977.8		584.7		11.7	%
South Central	4,998.1		758.0		15.2	%	4,202.4		551.1		13.1	%
Southwest	881.6		136.9		15.5	%	772.6		100.4		13.0	%
West	3,847.7		443.3		11.5	%	3,650.8		378.0		10.4	%
	$	19,643.9	$	2,665.0	13.6	%	$	17,016.9	$	1,910.7	11.2	%

_____________

(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.

East Region — Homebuilding revenues increased 15% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our New Jersey, Myrtle Beach and Charlotte markets. The region generated pre-tax income of $357.0 million in 2020 compared to $238.8 million in 2019. Gross profit from home sales as a percentage of home sales revenue (home sales gross profit percentage) increased by 250 basis points in 2020 compared to 2019, due to an increase in the average selling price of homes closed and a decrease in the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 50 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

Midwest Region — Homebuilding revenues increased 27% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our Denver and Indianapolis markets. The region generated pre-tax income of $128.8 million in 2020 compared to $57.7 million in 2019. Home sales gross profit percentage increased by 270 basis points in 2020 compared to 2019, due to decreases in purchase accounting adjustments in the current year related to the acquisitions of Westport Homes and Classic Builders. As a percentage of homebuilding revenues, SG&A expenses decreased by 110 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

Southeast Region — Homebuilding revenues increased 17% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in all of our markets. The region generated pre-tax income of $841.0 million in 2020 compared to $584.7 million in 2019. Home sales gross profit percentage increased by 220 basis points in 2020 compared to 2019, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 40 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

South Central Region — Homebuilding revenues increased 19% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the number of homes closed in our Houston, Dallas and San Antonio markets. The region generated pre-tax income of $758.0 million in 2020 compared to $551.1 million in 2019. Home sales gross profit percentage increased by 130 basis points in 2020 compared to 2019, primarily due to an increase in the average selling price of homes closed and a decrease in the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 70 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

36

Southwest Region — Homebuilding revenues increased 14% in fiscal 2020 compared to fiscal 2019, primarily due to increases in the average selling price of homes closed in all markets. The region generated pre-tax income of $136.9 million in 2020 compared to $100.4 million in 2019. Home sales gross profit percentage increased by 190 basis points in 2020 compared to 2019, primarily due to the average selling price of homes closed increasing by more than the average cost of those homes. As a percentage of homebuilding revenues, SG&A expenses decreased by 40 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

West Region — Homebuilding revenues increased 5% in fiscal 2020 compared to fiscal 2019, due to increases in the number of homes closed in our Portland, Southern California, Las Vegas and Spokane markets, partially offset by decreases in the average selling price of homes closed in many markets. The region generated pre-tax income of $443.3 million in 2020 compared to $378.0 million in 2019. Home sales gross profit percentage decreased by 10 basis points in 2020 compared to 2019, primarily due to the average selling price of homes closed decreasing by more than the average cost of those homes. The region also benefited from lower inventory and land option charges, which were $4.3 million in 2020 compared to $24.2 million in 2019. As a percentage of homebuilding revenues, SG&A expenses decreased by 60 basis points in 2020 compared to 2019, primarily due to the increase in homebuilding revenues.

37

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 September 30, 2020 and 2019 are summarized as follows:

	September 30, 2020
	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)
East	$	785.3	$	531.2	$	5.5	$	6.3	$	1,328.3
Midwest	497.0		459.0		1.8		0.7		958.5
Southeast	1,655.5		1,231.5		32.3		0.6		2,919.9
South Central	1,596.3		1,282.3		0.3		1.0		2,879.9
Southwest	244.2		449.7		1.6		0.3		695.8
West	1,137.3		847.1		5.7		19.0		2,009.1
Corporate and unallocated (1)	121.9		100.6		0.6		0.4		223.5
	$	6,037.5	$	4,901.4	$	47.8	$	28.3	$	11,015.0

	September 30, 2019
	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)
East	$	697.1	$	581.2	$	10.5	$	—	$	1,288.8
Midwest	473.9		361.1		1.8		—		836.8
Southeast	1,434.7		1,299.9		31.8		1.6		2,768.0
South Central	1,215.4		1,317.5		0.3		—		2,533.2
Southwest	221.8		335.6		1.6		15.4		574.4
West	1,089.0		950.6		13.9		2.5		2,056.0
Corporate and unallocated (1)	117.1		110.2		0.8		0.3		228.4
	$	5,249.0	$	4,956.1	$	60.7	$	19.8	$	10,285.6

_____________

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

38

Our homebuilding segment’s land and lot position and homes in inventory at September 30, 2020 and 2019 are summarized as follows:

	September 30, 2020
	Land/Lots Owned (1)		Lots Controlled Under Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
East	11,300		50,500		61,800		4,900
Midwest	8,000		17,800		25,800		2,600
Southeast	28,700		95,700		124,400		11,500
South Central	40,100		65,200		105,300		12,600
Southwest	7,200		7,600		14,800		1,800
West	17,300		27,500		44,800		4,600
	112,600		264,300		376,900		38,000
	30	%	70	%	100	%

	September 30, 2019
	Land/Lots Owned (1)		Lots Controlled Under Land and Lot Purchase Contracts (2)(3)		Total Land/Lots Owned and Controlled		Homes in Inventory (4)
East	11,000		30,500		41,500		3,900
Midwest	8,300		10,900		19,200		2,200
Southeast	34,800		73,300		108,100		8,900
South Central	41,600		51,400		93,000		7,900
Southwest	6,700		5,800		12,500		1,300
West	19,000		14,000		33,000		3,500
	121,400		185,900		307,300		27,700
	40	%	60	%	100	%

_____________

(1)Land/lots owned include approximately 33,800 and 36,100 owned lots that are fully developed and ready for home construction at September 30, 2020 and 2019, respectively. Land/lots owned also include land held for development representing 1,600 and 1,700 lots at September 30, 2020 and 2019, respectively.

(2)The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30, 2020 and 2019 was $9.9 billion and $7.2 billion, respectively, secured by earnest money deposits of $653.4 million and $515.4 million, respectively. The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30, 2020 and 2019 included $1.0 billion and $953.8 million, respectively, related to lot purchase contracts with Forestar, secured by $98.2 million and $88.7 million, respectively, of earnest money.

(3)Lots controlled at September 30, 2020 include approximately 30,400 lots owned or controlled by Forestar, 14,000 of which our homebuilding divisions have under contract to purchase and 16,400 of which our homebuilding divisions have a right of first offer to purchase. Of these, approximately 15,400 lots were in our Southeast region, 5,000 lots were in our South Central region, 4,200 lots were in our West region, 2,600 lots were in our East region, 2,000 lots were in our Southwest region and 1,200 lots were in our Midwest region. Lots controlled at September 30, 2019 included approximately 23,400 lots owned or controlled by Forestar, 12,800 of which our homebuilding divisions had under contract to purchase and 10,600 of which our homebuilding divisions had a right of first offer to purchase.

(4)Approximately 14,900 and 16,000 of our homes in inventory were unsold at September 30, 2020 and 2019, respectively. At September 30, 2020, approximately 1,900 of our unsold homes were completed, of which approximately 300 homes had been completed for more than six months. At September 30, 2019, approximately 5,200 of our unsold homes were completed, of which approximately 800 homes had been completed for more than six months. Homes in inventory exclude approximately 1,800 and 1,900 model homes at September 30, 2020 and 2019, respectively.

39

Results of Operations — Forestar

In October 2017, we acquired 75% of the outstanding shares of Forestar and at September 30, 2020, we owned 65% of its outstanding shares. Forestar is a publicly traded residential lot development company with operations in 49 markets across 21 states as of September 30, 2020. Forestar’s segment results are presented on their historical cost basis, consistent with the manner in which management evaluates segment performance. (See Note B for additional Forestar segment information and purchase accounting adjustments.)

Results of operations for the Forestar segment for the fiscal years ended September 30, 2020 and 2019 were as follows.

	Year Ended September 30,
	2020		2019
	(In millions)
Residential land and lot sales	$	928.9	$	407.5
Commercial tract sales	2.5		18.5
Other	0.4		2.3
Total revenues	931.8		428.3
Cost of sales	813.7		362.7
Selling, general and administrative expense	45.7		28.9
Equity in earnings of unconsolidated entities	(0.7)		(0.5)
Gain on sale of assets	(0.1)		(3.0)
Other (income) expense	(4.9)		(5.5)
Income before income taxes	$	78.1	$	45.7

At September 30, 2020, Forestar owned directly or controlled through land and lot purchase contracts approximately 60,500 residential lots, of which approximately 5,000 are fully developed. Approximately 30,400 of these lots are under contract to sell to D.R. Horton or subject to a right of first offer under the master supply agreement with D.R. Horton. Approximately 400 of these lots are under contract to sell to other builders.

Residential land and lot sales primarily consist of the sale of single-family lots to local, regional and national homebuilders. During fiscal 2020 and 2019, Forestar’s land and lot sales, including the portion sold to D.R. Horton and the revenues generated from those sales, were as follows.

	Year Ended September 30,
	2020		2019
	($ in millions)
Total residential single-family lots sold	10,373		4,132
Residential single-family lots sold to D.R. Horton	10,164		3,728
Residential lot sales revenues from sales to D.R. Horton	$	861.8	$	315.7
Residential tract acres sold to D.R. Horton	143		290
Residential land sales revenues from sales to D.R. Horton	$	25.6	$	10.9

SG&A expense for fiscal 2020 and 2019 includes charges of $5.0 million and $2.1 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.

40

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 fiscal years ended September 30, 2020 and 2019.

	Year Ended September 30,
	2020		2019		% Change
Number of first-lien loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	44,600		33,024		35	%
Number of homes closed by D.R. Horton	65,388		56,975		15	%
Percentage of D.R. Horton homes financed by DHI Mortgage	68	%	58	%
Number of total loans originated or brokered by DHI Mortgage for D.R. Horton homebuyers	44,738		33,114		35	%
Total number of loans originated or brokered by DHI Mortgage	46,010		33,827		36	%
Captive business percentage	97	%	98	%
Loans sold by DHI Mortgage to third parties	44,423		32,849		35	%

	Year Ended September 30,
	2020		2019		% Change
	(In millions)
Loan origination fees	$	3.0	$	11.7	(74)	%
Sale of servicing rights and gains from sale of mortgage loans	437.2		319.4		37	%
Other revenues	36.5		24.4		50	%
Total mortgage operations revenues	476.7		355.5		34	%
Title policy premiums	108.2		86.2		26	%
Total revenues	584.9		441.7		32	%
General and administrative expense	364.7		293.0		24	%
Other (income) expense	(25.0)		(17.6)		42	%
Financial services pre-tax income	$	245.2	$	166.3	47	%

Financial Services Operating Margin Analysis

	Percentages of Financial Services Revenues
	Year Ended September 30,
	2020		2019
General and administrative expense	62.4	%	66.3	%
Other (income) expense	(4.3)	%	(4.0)	%
Financial services pre-tax income	41.9	%	37.6	%

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Mortgage Loan Activity

The volume of loans originated by our mortgage operations is directly related to the number of homes closed by our homebuilding operations. In fiscal 2020, the volume of first-lien loans originated or brokered by DHI Mortgage for our homebuyers increased 35% from the prior year, due to an increase in the percentage of homes closed for which DHI Mortgage handled the homebuyers’ financing, as well a 15% increase in the number of homes closed by our homebuilding operations. The percentage of homes closed for which DHI Mortgage handled the homebuyers’ financing was 68% in fiscal 2020 compared to 58% in the prior year. The increase in this percentage was primarily due to the Company’s program to offer below market interest rates to D.R. Horton homebuyers, expanded coverage in certain markets and increased efficiencies resulting from technology advances.

Homes closed by our homebuilding operations constituted 97% and 98% of DHI Mortgage loan originations in fiscal 2020 and 2019, respectively. These percentages reflect DHI Mortgage’s consistent focus on the captive business provided by our homebuilding operations.

The number of loans sold increased 35% in fiscal 2020 compared to the prior year. Virtually all of the mortgage loans held for sale on September 30, 2020 were eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae. During fiscal 2020, approximately 66% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae and 28% were sold to two other major financial entities. 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 or Ginnie Mae, and we may need to make other adjustments to our mortgage operations.

Due to the disruption in the secondary mortgage markets beginning in late March 2020 caused by C-19 and the uncertainty of the impact of the CARES Act, many financial entities began offering lower pricing and limiting their purchases of our mortgages and servicing rights. As a result of the rapid decline in servicing values at the end of March, we began retaining the servicing rights on a portion of our loan originations. Servicing values have since improved, and we expect to sell these rights to third parties.

Financial Services Revenues and Expenses

Revenues from our mortgage operations increased 34% to $476.7 million in fiscal 2020 from $355.5 million in fiscal 2019, primarily due to a 36% increase in loan originations. During the fourth quarter, due to better clarity related to the CARES Act, pricing and execution in the secondary market improved from the previous nine months ended June 30, 2020, which caused revenues in the fourth quarter to increase at a higher rate than origination volume. Revenues from our title operations increased 26% to $108.2 million in fiscal 2020 from $86.2 million in fiscal 2019, primarily due to a 28% increase in escrow closings.

General and administrative (G&A) expense related to our financial services operations increased 24% to $364.7 million in fiscal 2020 from $293.0 million in the prior year. The increase was primarily due to an increase in employee related costs to support a higher volume of transactions. Our financial services operations employed 2,163 and 1,924 employees at September 30, 2020 and 2019, respectively.

As a percentage of financial services revenues, G&A expense was 62.4% in fiscal 2020 compared to 66.3% in the prior year. Fluctuations in financial services G&A expense as a percentage of revenues 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.

Other income, net of other expense, included in our financial services operations consists primarily of the interest income of our mortgage subsidiary.

As a result of the revenue increases from higher volumes of mortgage originations and escrow closings, which also allowed us to better leverage our G&A expenses, pre-tax income from our financial services operations increased 47% to $245.2 million in fiscal 2020 from $166.3 million in fiscal 2019.

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Results of Operations — Other Businesses

The combined pre-tax income of all of our subsidiaries engaged in other business activities was $55.1 million in fiscal 2020 compared to $55.5 million in fiscal 2019. Income generated by our other businesses can vary significantly based on the timing of sales of multi-family rental properties.

Through DHI Communities, a 100% owned subsidiary, we develop, construct and own multi-family residential properties that produce rental income. DHI Communities is primarily focused on constructing garden style multi-family communities, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After DHI Communities has completed construction and achieved a stabilized level of leased occupancy, the property is typically marketed for sale. During fiscal 2020 and 2019, DHI Communities sold multi-family rental properties for a total of $128.5 million and $133.4 million, respectively, and recorded gains on sale totaling $59.4 million and $51.9 million. DHI Communities had five projects under active construction and one project that was substantially complete at September 30, 2020. These six projects represent 1,730 multi-family units, including 1,430 units under active construction and 300 completed units.

Results of Operations — Consolidated

Income before Income Taxes

Pre-tax income was $3.0 billion in fiscal 2020 compared to $2.1 billion in fiscal 2019. The increase was primarily due to an increase in pre-tax income generated by our homebuilding operations as a result of higher revenues from increased home closings and an increase in home sales gross margin. In fiscal 2020, our homebuilding, financial services and other businesses generated pre-tax income of $2.7 billion, $245.2 million and $55.1 million, respectively, compared to pre-tax income of $1.9 billion, $166.3 million and $55.5 million, respectively, in fiscal 2019.

Income Taxes

Our income tax expense was $602.5 million and $506.7 million in fiscal 2020 and 2019, respectively, and our effective tax rate was 20.2% and 23.8% in those years. The effective tax rate for fiscal 2020 includes a tax benefit of $93.4 million from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). The Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020. The effective tax rate for fiscal 2020 also includes a tax benefit of $11.2 million related to the release of a valuation allowance against our state deferred tax assets. The effective tax rates for both years include an expense for state income taxes, reduced by tax benefits related to stock-based compensation.

Our deferred tax assets, net of deferred tax liabilities, were $152.4 million at September 30, 2020 compared to $181.8 million at September 30, 2019. We have a valuation allowance of $7.5 million and $18.7 million at September 30, 2020 and 2019, respectively, related to state deferred tax assets for net operating loss (NOL) carryforwards that are more likely than not to expire before being realized. The decrease in the valuation allowance is primarily attributable to our determination that we will have sufficient future taxable income in certain state tax jurisdictions to realize a portion of our state NOL carryforwards. 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 carryforwards. Any reversal of the valuation allowance in future periods will impact our effective tax rate.

D.R. Horton has $15.8 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction. Of the total amount, $5.4 million of the tax benefits expire over the next ten years and the remaining $10.4 million expires from fiscal years 2031 to 2040. Forestar has $1.7 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction.

The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on our consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of our deferred tax assets.

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Unrecognized tax benefits are the differences between tax positions taken or expected to be taken in a tax return and the benefits recognized in our financial statements. Our unrecognized tax benefits totaled $8.9 million at September 30, 2020 and were insignificant at September 30, 2019.

D.R. Horton is subject to federal income tax and state income tax in multiple jurisdictions. The statute of limitations for D.R. Horton’s major tax jurisdictions remains open for examination for fiscal years 2017 through 2020. D.R. Horton is not currently under audit for federal income tax, but is under audit by various states. We are not aware of any significant findings by the state taxing authorities.

Forestar is subject to federal income tax and state income tax in multiple jurisdictions. The statute of limitations for Forestar’s major tax jurisdictions remains open for examination for tax years 2016 through 2020. Forestar is not currently under audit for federal or state income taxes.

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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 remain cautious as to the ongoing impact of C-19 on the U.S. economy and will adjust our strategy as appropriate should market conditions change due to the pandemic or otherwise.

In the current market, we are increasing our investments in homebuilding inventories and single-family and multi-family rental properties to expand our operations and grow our revenues and profitability, as well as considering opportunistic strategic investments as they arise. We are also maintaining higher homebuilding cash balances than in prior years to support the increased scale and level of activity in our business and to provide flexibility to adjust to changing conditions and opportunities.

At September 30, 2020, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes payable) was 26.6% compared to 25.3% at September 30, 2019. Our ratio of homebuilding debt to total capital (homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 17.5% compared to 17.0% at September 30, 2019. Over the long term, we intend to maintain our ratio of homebuilding debt to total capital below 35%, and we expect it to remain significantly lower than 35% throughout fiscal 2021. We believe that the ratio of homebuilding debt to total capital is useful in understanding the leverage employed in our homebuilding operations and comparing our capital structure with other homebuilders. We exclude the debt of Forestar and our financial services business because they are separately capitalized and not guaranteed by our parent company or any of our homebuilding entities.

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 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 SEC in August 2018, 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 September 2018, registering $500 million of equity securities. At September 30, 2020, $394.3 million remained available under Forestar’s shelf registration statement, $100 million of which is reserved for sales under its at-the-market equity offering 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 facility 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, including the maturity of $400 million aggregate principal amount of our homebuilding senior notes in fiscal 2021. However, due to the current economic uncertainties related to C-19, we may be limited in accessing the capital markets or obtaining additional bank financing or the cost of accessing this financing could become more expensive for funding our longer-term capital needs.

Capital Resources - Homebuilding

Cash and Cash Equivalents — At September 30, 2020, cash and cash equivalents of our homebuilding segment totaled $2.6 billion.

Bank Credit Facilities — We have a $1.59 billion senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment. Letters of credit issued under the facility reduce the available borrowing capacity. The interest rate on borrowings under the revolving credit facility may be based on either the Prime Rate or London Interbank Offered Rate (LIBOR) plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is October 2, 2024. Borrowings and repayments under the facility totaled $1.06 billion each during fiscal 2020. At September 30, 2020, there were no borrowings outstanding and $142.9 million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately $1.45 billion.

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In May 2020, we entered into a credit agreement providing for a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments. The interest rate on borrowings under the 364-day revolving credit facility may be based on either the Prime Rate or LIBOR plus an applicable margin, as defined in the credit agreement governing the facility. The maturity date of the facility is May 27, 2021. There were no borrowings under the facility for the period from its inception through September 30, 2020.

Our homebuilding revolving credit facilities impose 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. Both facilities include substantially the same affirmative and negative covenants, events of default and financial covenants. These covenants are measured as defined in the credit agreements governing the facilities 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 facilities or cause any outstanding borrowings to become due and payable prior to maturity. The credit agreements governing the facilities impose restrictions on the creation of secured debt and liens. At September 30, 2020, we were in compliance with all of the covenants, limitations and restrictions of our homebuilding revolving credit facilities.

Public Unsecured Debt — We have $2.45 billion principal amount of homebuilding senior notes outstanding as of September 30, 2020 that mature from December 2020 through October 2025. In October 2019, we issued $500 million principal amount of 2.5% senior notes due October 15, 2024, with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 2.7%. In February 2020, we repaid $500 million principal amount of our 4.0% senior notes at maturity. In May 2020, we issued $500 million principal amount of 2.6% senior notes due October 15, 2025 with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 2.8%. The indentures governing our senior notes impose restrictions on the creation of secured debt and liens. At September 30, 2020, we were in compliance with all of the limitations and restrictions associated with our public debt obligations.

In October 2020, we issued $500 million principal amount of 1.4% senior notes due October 15, 2027, with interest payable semi-annually. The annual effective interest rate of these notes after giving effect to the amortization of the discount and financing costs is 1.6%.

Repurchases of Common Stock — During fiscal 2020, we repurchased 7.0 million shares of our common stock for $360.4 million.

Debt and Equity Repurchase Authorizations — Effective July 30, 2019, our Board of Directors authorized the repurchase of up to $500 million of debt securities and $1.0 billion of our common stock. At September 30, 2020, the full amount of the debt repurchase authorization was remaining, and $535.3 million of the equity repurchase authorization was remaining. These authorizations have no expiration date.

Capital Resources - Forestar

Forestar’s ability to achieve its long-term growth objectives will depend on its ability to obtain financing in sufficient capacities. 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.

Cash and Cash Equivalents — At September 30, 2020, Forestar had cash and cash equivalents of $394.3 million.

Bank Credit Facility — Forestar has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments. The facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment. Borrowings under the revolving credit facility are subject to a borrowing base calculation based on Forestar’s book value of its real estate assets and unrestricted cash. Letters of credit issued under the facility reduce the available borrowing capacity. At September 30, 2020, there were no borrowings outstanding and $36.0 million of letters of credit issued under the revolving credit facility, resulting in available capacity of $344.0 million. The maturity date of the facility is October 2, 2022, which can be extended by up to one year on up to two additional occasions, subject to the approval of lenders holding a majority of the commitments.

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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 — In February 2020, Forestar issued $300 million principal amount of 5.0% senior notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The notes mature March 1, 2028, with interest payable semi-annually, and represent unsecured obligations of Forestar. The annual effective interest rate of these notes after giving effect to the amortization of financing costs is 5.2%. These notes may be redeemed prior to maturity, subject to certain limitations and premiums defined in the indenture agreement. Forestar also has $350 million principal amount of 8.0% senior notes that mature April 15, 2024. In March 2020, Forestar repaid $118.9 million principal amount of its 3.75% convertible senior notes in cash at maturity.

Forestar’s revolving credit facility and its senior notes are not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee our homebuilding debt. At September 30, 2020, Forestar was in compliance with all of the covenants, limitations and restrictions of its revolving credit facility and senior note obligations.

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

Capital Resources - Financial Services

Cash and Cash Equivalents — At September 30, 2020, cash and cash equivalents of our financial services operations totaled $55.6 million.

Mortgage Repurchase Facility — Our mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to the counterparties upon receipt of funds from the counterparties. DHI Mortgage then has the right and obligation to repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time frames from 45 to 60 days