ANNUAL REPORT
- 2019 -
FINANCIAL SUMMARY
(In millions, except for number of homes, lots and per share amounts)
As of and for the Year Ended September 30,
2019
2018
2017
2016
2015
Balance Sheet:
Cash and cash equivalents ......................................... $ 1,494.3
Inventories ............................................................... 11,282.0
Total assets .............................................................. 15,606.6
Notes payable .......................................................... 3,399.4
Stockholders’ equity ................................................ 10,020.9
27.20
Book value per common share ...............................
368.4
Common shares outstanding ..................................
Income Statement and Cash Flow:
$17,592.9
Revenues ..................................................................
Income before income taxes ................................... 2,125.3
(cid:69)(cid:286)(cid:410)(cid:3)(cid:349)(cid:374)(cid:272)(cid:381)(cid:373)(cid:286)(cid:3)(cid:258)(cid:425)(cid:396)(cid:349)(cid:271)(cid:437)(cid:410)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:24)(cid:856)(cid:90)(cid:856)(cid:3)(cid:44)(cid:381)(cid:396)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)(cid:3)......... 1,618.5
(cid:24)(cid:349)(cid:367)(cid:437)(cid:410)(cid:286)(cid:282)(cid:3)(cid:286)(cid:258)(cid:396)(cid:374)(cid:349)(cid:374)(cid:336)(cid:400)(cid:3)(cid:393)(cid:286)(cid:396)(cid:3)(cid:272)(cid:381)(cid:373)(cid:373)(cid:381)(cid:374)(cid:3)(cid:400)(cid:346)(cid:258)(cid:396)(cid:286)(cid:3)
(cid:258)(cid:425)(cid:396)(cid:349)(cid:271)(cid:437)(cid:410)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:24)(cid:856)(cid:90)(cid:856)(cid:3)(cid:44)(cid:381)(cid:396)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3) .........................
(cid:18)(cid:258)(cid:400)(cid:346)(cid:3)(cid:393)(cid:396)(cid:381)(cid:448)(cid:349)(cid:282)(cid:286)(cid:282)(cid:3)(cid:271)(cid:455)(cid:3)(cid:381)(cid:393)(cid:286)(cid:396)(cid:258)(cid:415)(cid:381)(cid:374)(cid:400)(cid:3)(cid:3)....................................
4.29
892.1
Percentages of Revenues:
$ 1,473.1
10,395.0
14,114.6
3,203.5
8,984.4
23.88
376.3
$ 1,007.8
9,237.1
12,184.6
2,871.6
7,747.1
20.66
375.0
$ 1,303.2
8,340.9
11,558.9
3,271.3
6,792.5
18.21
372.9
$ 1,383.8
7,807.0
11,151.0
3,811.5
5,894.3
15.99
368.6
$ 16,068.0
2,060.0
1,460.3
$ 14,091.0
1,602.1
1,038.4
$ 12,157.4
1,353.5
886.3
$ 10,824.0
1,123.4
750.7
3.81
545.2
2.74
440.2
11.4%
7.4%
2.36
623.9
11.1%
7.3%
2.03
706.4
10.4%
6.9%
12.8%
36,648
18,200
118,400
55,500
Income before income taxes ...................................
(cid:69)(cid:286)(cid:410)(cid:3)(cid:349)(cid:374)(cid:272)(cid:381)(cid:373)(cid:286)(cid:3)(cid:258)(cid:425)(cid:396)(cid:349)(cid:271)(cid:437)(cid:410)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:410)(cid:381)(cid:3)(cid:24)(cid:856)(cid:90)(cid:856)(cid:3)(cid:44)(cid:381)(cid:396)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:47)(cid:374)(cid:272)(cid:856)(cid:3)(cid:3).........
12.1%
9.2%
12.8%
9.1%
Homebuilding Operations:
Homebuilding return on inventory(1) ......................
18.1%
56,975
Homes closed ............................................................
27,700
Homes in inventory ....................................................
Land/lots owned .......................................................
121,400
Lots controlled under purchase contracts ................. 185,900
Percentages of Revenues:
20.2%
51,857
27,900
124,300
164,200
16.6%
45,751
24,600
125,000
124,000
15.4%
40,309
21,500
112,900
91,600
(cid:39)(cid:396)(cid:381)(cid:400)(cid:400)(cid:3)(cid:393)(cid:396)(cid:381)(cid:302)(cid:410)(cid:3)(cid:882)(cid:3)(cid:346)(cid:381)(cid:373)(cid:286)(cid:3)(cid:400)(cid:258)(cid:367)(cid:286)(cid:400) ........................................
SG&A expense - homebuilding ................................
20.2%
8.7%
21.3%
8.6%
20.0%
8.9%
20.2%
9.3%
19.8%
9.5%
$20,000
$15,000
$10,000
$5,000
$0
$30.00
$17,593
$16,068
$14,091
$12,157
$10,824
$2,060
$2,125
$1,602
$1,354
$1,123
$2,500
$2,000
$1,500
$1,000
$500
$0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
$27.20
$23.88
$20.66
$10,021
$8,984
$7,747
$6,793
$5,894
$12,000
$8,000
$4,000
$0
$20.00
$18.21
$15.99
$10.00
$0
20%
18%
17%
15%
13%
2015
2016
2017
2018
2019
36%
29%
24%
21%
17%
25%
20%
15%
10%
5%
0%
40%
30%
20%
10%
0%
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
(1) Homebuilding return on inventory is calculated as homebuilding pre-tax income for the year divided by average homebuilding inventory. Average
(cid:346)(cid:381)(cid:373)(cid:286)(cid:271)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:349)(cid:374)(cid:448)(cid:286)(cid:374)(cid:410)(cid:381)(cid:396)(cid:455)(cid:3)(cid:349)(cid:374)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:272)(cid:258)(cid:367)(cid:272)(cid:437)(cid:367)(cid:258)(cid:415)(cid:381)(cid:374)(cid:3)(cid:349)(cid:400)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:400)(cid:437)(cid:373)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:286)(cid:374)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:346)(cid:381)(cid:373)(cid:286)(cid:271)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:349)(cid:374)(cid:448)(cid:286)(cid:374)(cid:410)(cid:381)(cid:396)(cid:455)(cid:3)(cid:271)(cid:258)(cid:367)(cid:258)(cid:374)(cid:272)(cid:286)(cid:400)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:410)(cid:396)(cid:258)(cid:349)(cid:367)(cid:349)(cid:374)(cid:336)(cid:3)(cid:302)(cid:448)(cid:286)(cid:3)(cid:395)(cid:437)(cid:258)(cid:396)(cid:410)(cid:286)(cid:396)(cid:400)(cid:3)(cid:282)(cid:349)(cid:448)(cid:349)(cid:282)(cid:286)(cid:282)(cid:3)(cid:271)(cid:455)(cid:3)(cid:302)(cid:448)(cid:286)(cid:856)
(cid:894)(cid:1006)(cid:895)(cid:3)(cid:3)(cid:44)(cid:381)(cid:373)(cid:286)(cid:271)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:367)(cid:286)(cid:448)(cid:286)(cid:396)(cid:258)(cid:336)(cid:286)(cid:3)(cid:396)(cid:258)(cid:415)(cid:381)(cid:3)(cid:396)(cid:286)(cid:393)(cid:396)(cid:286)(cid:400)(cid:286)(cid:374)(cid:410)(cid:400)(cid:3)(cid:346)(cid:381)(cid:373)(cid:286)(cid:271)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:374)(cid:381)(cid:410)(cid:286)(cid:400)(cid:3)(cid:393)(cid:258)(cid:455)(cid:258)(cid:271)(cid:367)(cid:286)(cid:3)(cid:282)(cid:349)(cid:448)(cid:349)(cid:282)(cid:286)(cid:282)(cid:3)(cid:271)(cid:455)(cid:3)(cid:410)(cid:381)(cid:410)(cid:258)(cid:367)(cid:3)(cid:272)(cid:258)(cid:393)(cid:349)(cid:410)(cid:258)(cid:367)(cid:3)(cid:894)(cid:400)(cid:410)(cid:381)(cid:272)(cid:364)(cid:346)(cid:381)(cid:367)(cid:282)(cid:286)(cid:396)(cid:400)(cid:859)(cid:3)(cid:286)(cid:395)(cid:437)(cid:349)(cid:410)(cid:455)(cid:3)(cid:393)(cid:367)(cid:437)(cid:400)(cid:3)(cid:346)(cid:381)(cid:373)(cid:286)(cid:271)(cid:437)(cid:349)(cid:367)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:374)(cid:381)(cid:410)(cid:286)(cid:400)(cid:3)(cid:393)(cid:258)(cid:455)(cid:258)(cid:271)(cid:367)(cid:286)(cid:895)(cid:856)
Dear Fellow Shareholders:
The D.R. Horton team delivered an outstanding year in fiscal 2019. Our results reflect the strength of our
experienced operational teams, industry-leading market share, broad geographic footprint and affordable product
offerings across multiple brands. We closed 56,975 homes in fiscal 2019, completing our 18th consecutive year as
the largest homebuilder in the United States. Over the last five years, we have grown our revenues by 119% and our
earnings per share by 186%, while also generating $4.0 billion of cash flows from homebuilding operations,
significantly increasing returns on inventory and equity and reducing our debt.
Our financial achievements during fiscal 2019 included the following:
•
•
•
Increased total revenues by 9%;
Increased consolidated pre-tax income by 3% to $2.1 billion, with a pre-tax profit margin of 12.1%;
Increased net income attributable to D.R. Horton by 11% to $1.6 billion or $4.29 per diluted share;
• Homebuilding return on inventory was 18.1% and return on equity was 17.2%;
• Generated $1.4 billion of homebuilding cash from operations;
•
•
•
•
Improved homebuilding debt to total capital by 440 basis points to 17.0%;
Increased stockholders’ equity to $10.0 billion, up 12% from $9.0 billion a year ago; and
Increased book value per share to $27.20, up 14% from a year ago.
Paid cash dividends of $223.4 million and repurchased 11.9 million shares of common stock for
$479.8 million.
The key to our performance is a consistent focus on the fundamentals of our business in each of our
communities across the 90 markets in which we operate. Our operational teams in each market are responsible for
building quality homes, ensuring our product offerings and pricing align with customer demand in each community,
and serving our customers with excellence. Our local teams strive to manage our business in each market to achieve
an optimal balance of sales pace, pricing, profit margins and inventory levels in each community to maximize the
returns on our inventory investments. We are focused on providing compelling value to our customers by offering
quality homes at affordable price points across our entire family of brands and being the leading builder in each of
our operating markets.
We are well-positioned for fiscal 2020 with our broad geographic footprint, diverse product offerings, strong
balance sheet and liquidity and our experienced personnel across our operating markets. Our continued strategic
focus is to grow our revenues and profits and consolidate market share, while generating strong annual operating
cash flows and returns. Our employees are the best in the industry, and their dedication and daily efforts are driving
our success. We thank all of our suppliers, subcontractors, land developers, real estate agents and lenders for their
valuable relationships. Finally, we appreciate our shareholders for your consistent support, as we strive to validate
your trust by delivering sustainable value, addressing future challenges directly and maintaining our position as the
leader in the homebuilding industry.
Donald R. Horton
Chairman of the Board
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, 2019
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
(State or other jurisdiction of incorporation or organization)
75-2386963
(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
Common Stock, par value $.01 per share
5.750% Senior Notes due 2023
Trading Symbol
DHI
DHI 23A
Name of Each Exchange on Which Registered
New York Stock Exchange
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
No
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
No
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
No
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
No
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
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of March 31, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately
$14.4 billion based on the closing price as reported on the New York Stock Exchange.
As of November 13, 2019, there were 368,493,204 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders are incorporated herein by reference (to the
extent indicated) in Part III.
D.R. HORTON, INC. AND SUBSIDIARIES
2019 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
ITEM 1.
Business .......................................................................................................................................
ITEM 1A.
Risk Factors .................................................................................................................................
ITEM 1B.
Unresolved Staff Comments ........................................................................................................
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
Properties .....................................................................................................................................
Legal Proceedings........................................................................................................................
Mine Safety Disclosures ..............................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ..............................................................................
Selected Financial Data................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ......
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk.....................................................
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data............................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......
ITEM 9A.
Controls and Procedures ..............................................................................................................
ITEM 9B.
Other Information ........................................................................................................................
PART III
ITEM 10.
Directors, Executive Officers and Corporate Governance...........................................................
ITEM 11.
Executive Compensation .............................................................................................................
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ............................................................................................
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence ............................
ITEM 14.
Principal Accountant Fees and Services ......................................................................................
PART IV
ITEM 15.
Exhibits and Financial Statement Schedules ...............................................................................
ITEM 16.
10-K Summary.............................................................................................................................
SIGNATURES .......................................................................................................................................................
1
12
23
23
23
23
24
26
27
55
60
113
113
113
114
114
114
115
115
116
121
122
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 90 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 $100,000 to more than $1,000,000. For the year ended
September 30, 2019, we closed 56,975 homes with an average closing price of $297,100.
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 $17.6 billion and $16.1 billion in fiscal 2019 and 2018, respectively, and 98% of our consolidated revenues
of $14.1 billion in fiscal 2017. 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 90% of our home sales revenue in fiscal 2019
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) for $558.3 million
in cash. Forestar is 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 efficiency and
returns by expanding relationships with land developers and increasing the portion of our land and lot position controlled
under land purchase contracts to enhance operational efficiency and returns. We owned approximately 66% of Forestar’s
outstanding common stock at September 30, 2019.
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 generally sells the mortgages it originates and 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 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
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.
1
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 (including related filings in XBRL format), 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 90 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.
2
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
Delaware
Georgia
Maryland
New Jersey
North Carolina
Pennsylvania
South Carolina
Virginia
Colorado
Illinois
Indiana
Iowa
Minnesota
Ohio
Louisiana
Oklahoma
Texas
East Region
Central Delaware
Northern Delaware
Savannah
Baltimore
Suburban Washington, D.C.
Northern New Jersey
Southern New Jersey
Asheville
Charlotte
Greensboro/Winston-Salem
Raleigh/Durham
Wilmington
Philadelphia
Charleston
Columbia
Greenville/Spartanburg
Hilton Head
Myrtle Beach
Northern Virginia
Southern Virginia
Midwest Region
Denver
Fort Collins
Chicago
Fort Wayne
Indianapolis
Des Moines
Minneapolis/St. Paul
Cincinnati
Columbus
South Central Region
Baton Rouge
Lafayette
Oklahoma City
Austin
Bryan/College Station
Dallas
Fort Worth
Houston
Killeen/Temple/Waco
Midland/Odessa
New Braunfels/San Marcos
San Antonio
Arizona
New Mexico
Southwest Region
Phoenix
Tucson
Albuquerque
Southeast Region
Birmingham
Huntsville
Mobile/Baldwin County
Montgomery
Tuscaloosa
Fort Myers/Naples
Gainesville
Jacksonville
Lakeland
Melbourne/Vero Beach
Miami/Fort Lauderdale
Ocala
Orlando
Pensacola/Panama City
Port St. Lucie
Tampa/Sarasota
Volusia County
West Palm Beach
Atlanta
Augusta
Gulf Coast
Chattanooga
Knoxville
Memphis
Nashville
West Region
Bakersfield
Bay Area
Fresno
Los Angeles County
Riverside County
Sacramento
San Bernardino County
San Diego County
Ventura County
Hawaii
Kauai
Maui
Oahu
Las Vegas
Reno
Bend
Portland/Salem
Salt Lake City
Seattle/Tacoma/Everett
Spokane
Vancouver
Alabama
Florida
Georgia
Mississippi
Tennessee
California
Hawaii
Nevada
Oregon
Utah
Washington
3
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 2019 as measured by number of homes
closed, and we are also one of the largest builders in many 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 conditions, have the best information to make many decisions regarding their
operations. At September 30, 2019, we had 52 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; 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.
4
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.
5
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 and development.
6
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.
7
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. We introduced our Freedom
Homes brand in 2016 to offer 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 2019 was as
follows:
D.R. Horton ..................................................................................................
Emerald ........................................................................................................
Express .........................................................................................................
Freedom........................................................................................................
Total .........................................................................................................
Percentage of
Home Closings
60%
Percentage of
Home Sales Revenue
63%
2%
35%
3%
100%
5%
29%
3%
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 Westport Homes brand in our Indianapolis and Fort Wayne,
Indiana and Columbus, Ohio markets; 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.
8
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,
2019, the value of our backlog of sales orders was $4.1 billion (13,613 homes), an increase of 3% from $4.0 billion
(13,371 homes) at September 30, 2018. The average sales price of homes in backlog was $304,100 at September 30,
2019, up slightly from the $301,300 average at September 30, 2018. 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 21% in fiscal 2019 compared to 22% in fiscal 2018.
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 two to six months; therefore, substantially all of the homes in our sales backlog at
September 30, 2019 are scheduled to close in fiscal year 2020.
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.
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 51 markets and 20 states as of September 30, 2019. We owned approximately 66% of
Forestar’s outstanding common stock at September 30, 2019. 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 to enhance operational efficiency and returns. Forestar
is making significant investments in land acquisition and development to expand its residential lot development business
across a geographically diversified national platform. 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 strongly influence the strategic direction and operations of Forestar.
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, 2019, DHI Mortgage
provided mortgage financing services for approximately 58% of our total homes closed, and approximately 98% 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.
9
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 their 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. We currently assume little
or no underwriting risk associated with these title policies.
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
products, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After DHI
Communities has completed construction and achieved a stabilized occupancy rate, the property is typically marketed for
sale. We currently have four projects under active construction and two projects that are substantially complete, one of
which was under contract to sell at September 30, 2019. During fiscal 2019, DHI Communities sold two multi-family
rental properties for $133.4 million and recorded gains on sale totaling $51.9 million. At September 30, 2019, DHI
Communities had total assets of $204.0 million, which included property and equipment of $153.9 million and other
assets of $28.9 million for a property held for sale.
Employees
At September 30, 2019, we employed 8,916 persons, of whom 1,908 were sales and marketing personnel, 2,532
were involved in construction, 2,552 were office personnel and 1,924 worked in mortgage and title operations. We focus
significant attention toward attracting and retaining talented and experienced individuals to manage and support our
operations, and we believe that we have good relations with our employees.
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.
During fiscal 2019, we acquired the homebuilding operations of Westport Homes, Classic Builders and Terramor
Homes for $325.9 million. The assets acquired included approximately 700 homes in inventory, 4,500 lots and control of
approximately 4,300 additional lots through land purchase contracts. We also acquired a sales order backlog of
approximately 700 homes. Westport Homes operates in Indianapolis and Fort Wayne, Indiana, and Columbus, Ohio;
Classic Builders operates in Des Moines, Iowa; and Terramor Homes operates in Raleigh, North Carolina.
10
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.
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 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, land 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.
11
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.
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.
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, related domestic or international
instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely
affect our business.
Public health issues such as a major epidemic or pandemic could adversely affect our business. The U.S. and other
countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public
perception of health risk. In the event of a widespread, prolonged, actual or perceived outbreak of a contagious disease,
our operations could be negatively impacted by a reduction in customer traffic or other factors which could reduce
demand for new homes.
12
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 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 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 such facility is October 2,
2024. Forestar and its subsidiaries, our financial services subsidiaries, and certain of our other subsidiaries are not
guarantors under our homebuilding revolving credit facility 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 such 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.
Our mortgage subsidiary utilizes a $900 million mortgage repurchase facility to finance the majority of the loans it
originates. The capacity of the facility increases, without requiring additional commitments, to $1.1 billion for
approximately 45 days at fiscal year end. The capacity can also be increased to $1.2 billion subject to the availability of
additional commitments. The mortgage repurchase facility must be renewed annually and currently expires on
February 21, 2020. 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.
13
We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, and
support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional
capital. We have an automatically effective universal shelf registration statement filed with the SEC in August 2018,
registering debt and equity securities that we may issue from time to time in amounts to be determined. Also, Forestar
has an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity
securities, of which $394.3 million remains available. As market conditions permit, we may issue new debt or equity
securities through the public capital markets or obtain additional bank financing to fund our projected capital
requirements or provide additional liquidity. We believe that our existing cash resources, our homebuilding revolving
credit facility, our mortgage repurchase facility and our ability to access the capital markets will provide sufficient
liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $500 million
aggregate principal amount of homebuilding senior notes in fiscal 2020. We believe that Forestar’s existing cash
resources together with borrowings under the Forestar revolving credit facility and its ability to access the capital
markets will provide sufficient liquidity to fund its near-term working capital needs, including the maturity of its
convertible senior notes in fiscal 2020. Adverse changes in economic, homebuilding or capital market conditions 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 and Ginnie Mae and are 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 2019, approximately 93% of the mortgage loans sold by DHI Mortgage were sold to four major financial
entities, the largest percentage of which purchased 32% of the total loans sold. On 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, 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.
Mortgage rates are currently low as compared to most historical periods; however, the Federal Reserve Board could
raise its benchmark rate. 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.
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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.
On October 5, 2017, we acquired 75% of the outstanding shares of Forestar for $558.3 million, pursuant to the
terms of a merger agreement entered into in June 2017 and approved by a vote of Forestar’s shareholders. We currently
own approximately 66% of the outstanding shares of Forestar. Forestar is a publicly traded residential lot development
company with operations in 51 markets and 20 states as of September 30, 2019. Forestar is making significant
investments in land acquisition and development to expand its residential lot development business across a
geographically diversified national platform. 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.
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.
15
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.
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 regard to its accuracy. The harm may be immediate without affording us an opportunity for redress or correction,
16
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.
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
volatile 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 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, 2019, we had $1.7 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.
Prior to the enactment of the Tax Cuts and Jobs Act (Tax Act), which was enacted into law on December 22, 2017,
significant expenses of owning a home, including mortgage loan interest and state and local taxes, generally were
deductible expenses for an individual’s federal income taxes, subject to various limitations. The Tax Act established new
limits on the federal tax deductions individual taxpayers may take on mortgage loan interest payments and on state and
local taxes, including property taxes. These changes could reduce the actual or perceived affordability of
homeownership, which could adversely affect demand for and sales prices of new homes, especially in areas with
relatively high housing prices or high state and local income taxes and real estate taxes. Any further change in income
tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with
homeownership could adversely affect demand for and sales prices of new homes.
In 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.
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.
In fiscal 2013, our mortgage subsidiary was subpoenaed by the United States Department of Justice (DOJ)
regarding the adequacy of certain underwriting and quality control processes related to FHA loans originated and sold in
prior years. We have provided information related to these loans and our processes to the DOJ, and communications are
ongoing. The DOJ has to date not asserted any formal claim amount, penalty or fine.
Due to the significant increases in regulations in recent years, operating costs have increased for our mortgage
operations. The possibility of additional future regulations, changing rule interpretations and examinations by regulatory
agencies may result in more stringent compliance standards and could adversely affect the results of our operations.
18
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, 2019, our consolidated debt was $3.4 billion, which consisted of $2.0 billion related to our
homebuilding segment, $462.9 million related to our Forestar segment and $888.9 million related to our financial
services segment. We had $1.6 billion principal amount of our debt maturing before the end of fiscal 2020, including
$500 million principal amount of homebuilding senior notes, $888.9 million outstanding under the mortgage repurchase
facility and $118.9 million principal amount of Forestar’s convertible senior notes. 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 agreement governing our
homebuilding revolving credit facility allows us to incur a substantial amount of future unsecured debt. Also, the
indentures governing our homebuilding senior notes and the agreement governing our homebuilding revolving credit
facility impose restrictions on our ability and on that of the guarantors under our homebuilding senior notes and our
homebuilding revolving credit facility 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
indenture 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.
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.
19
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 facility. Our homebuilding revolving credit facility contains 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 this revolving credit facility 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
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.
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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 facility. 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 facility) would constitute an event of default under our
homebuilding 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 repayment of more than $50 million outstanding under our homebuilding
revolving credit facility 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 facility 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 indenture
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 indenture 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 indenture 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.
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.
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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, land 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 and data security breaches 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. A material breach in the security of our information technology systems or other data security
controls could include the theft or release of customer, employee or company data. 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 public disclosure of personal identifying and confidential information
related to our homebuyers, employees, vendors and suppliers 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 or
security breaches in the future as legal requirements related to data security continue to increase. 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. 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 1.0 million square feet, and we lease approximately
580,000 square feet of office space under leases expiring through December 2024. 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.
In October 2018, we reached an agreement in principle with the EPA to settle an alleged violation of the wetlands
provisions of the Clean Water Act at one of our development sites in our Southeast region. Upon finalizing the agreement
in March 2019, we paid a penalty of $267,000 without an admission of liability. We also are participating in settlement
discussions with the U.S. Army Corps of Engineers (ACOE) and DOJ concerning alleged violations of the wetlands
provisions of the Clean Water Act at another 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
23
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 13, 2019, the closing price of our common stock on the NYSE was $54.33, and there were approximately 319
holders of record.
In November 2019, our Board of Directors approved a cash dividend of $0.175 per common share, payable on
December 11, 2019, to stockholders of record on November 27, 2019. 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 common stock repurchase
authorization. The following table sets forth information concerning our common stock repurchases during the three
months ended September 30, 2019. 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.
Total Number
of Shares
Purchased (1)
Average Price
Paid per
Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate
Dollar Value of
Shares that may
yet be Purchased
Under the Plans
or Programs (1)
(In millions)
July 1, 2019 - July 31, 2019.............................
August 1, 2019 - August 31, 2019 ...................
September 1, 2019 - September 30, 2019 ........
Total ...............................................................
— $
924,297
1,200,000
2,124,297
$
—
48.45
49.60
49.10
— $
1,000.0
924,297
1,200,000
2,124,297
$
955.2
895.7
895.7
______________
(1) Effective July 30, 2019, our Board of Directors authorized the repurchase of up to $1.0 billion of our common stock, which
replaced the previous authorization that we used to repurchase 9.8 million shares of our common stock during the nine
months ended June 30, 2019. The new authorization has no expiration date. During August and September 2019, we
purchased 2.1 million shares of our common stock for $104.3 million, resulting in a remaining authorization of $895.7
million at September 30, 2019.
During fiscal years 2019, 2018 and 2017, we did not sell any equity securities that were not registered under the
Securities Act of 1933, as amended.
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.
24
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, 2019, 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, 2014 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
$300
$250
$200
$150
$100
$50
$0
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
D.R. Horton, Inc.
S&P 500 Index
S&P 1500 Homebuilding Index
D.R. Horton, Inc.
S&P 500 Index
S&P 1500 Homebuilding Index
Year Ended September 30,
2014
2015
2016
2017
2018
2019
$ 100.00
$ 144.45
$ 150.18
$ 201.09
$ 214.77
$ 272.36
100.00
100.00
99.39
121.48
114.72
120.76
136.07
167.16
160.44
158.10
167.27
212.29
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 of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
25
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. As described in Note A to the financial statements, we have changed the presentation
of our consolidated balance sheets and statements of operations to present our homebuilding, Forestar, financial services
and other operations on a combined basis. The financial data in the tables below, including prior year amounts, reflect
this presentation. These historical results are not necessarily indicative of the results to be expected in the future.
Year Ended September 30,
2019
2018
2017
2016
2015
(In millions, except per share data)
Consolidated Operating Data:
Revenues (1) ................................................................ $ 17,592.9
$ 16,068.0
$ 14,091.0
$ 12,157.4
$ 10,824.0
Cost of sales .................................................................
13,720.9
12,398.1
11,042.8
Selling, general and administrative expense ...............
Income before income taxes........................................
Income tax expense .....................................................
Net income attributable to D.R. Horton, Inc. ..............
Net income per common share attributable
to D.R. Horton, Inc.:
Basic .......................................................................
Diluted ....................................................................
Cash dividends declared per common share ...............
1,832.5
2,125.3
506.7
1,676.8
2,060.0
597.7
1,471.6
1,602.1
563.7
1,618.5
1,460.3
1,038.4
4.34
4.29
0.60
3.88
3.81
0.50
2.77
2.74
0.40
9,502.6
1,320.3
1,353.5
467.2
886.3
2.39
2.36
0.32
8,535.7
1,186.0
1,123.4
372.7
750.7
2.05
2.03
0.25
September 30,
2019
2018
2017
2016
2015
(In millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents ........................................... $ 1,494.3
$ 1,473.1
$ 1,007.8
$ 1,303.2
$ 1,383.8
Inventories ...................................................................
11,282.0
10,395.0
9,237.1
8,340.9
7,807.0
Total assets...................................................................
15,606.6
14,114.6
12,184.6
11,558.9
11,151.0
Notes payable ..............................................................
Total liabilities.............................................................
3,399.4
5,311.5
Stockholders’ equity ....................................................
10,020.9
Total equity ..................................................................
10,295.1
3,203.5
4,955.7
8,984.4
9,158.9
2,871.6
4,437.0
7,747.1
7,747.6
3,271.3
4,765.9
6,792.5
6,793.0
3,811.5
5,255.6
5,894.3
5,895.4
26
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations — Fiscal Year 2019 Overview
Sales prices for both new and resale homes have increased across most of our markets over the past several years,
which has generally reduced housing affordability. During fiscal 2018, interest rates on mortgage loans increased, which
further impacted affordability. These conditions resulted in some moderation of demand for new homes across most of
our markets in late fiscal 2018 and early fiscal 2019, and in response, we increased our sales incentives to improve sales
pace. Later in fiscal 2019, interest rates on mortgage loans decreased, and we reduced sales incentives as demand
strengthened compared to earlier in the year. We continue to see solid economic fundamentals and a limited supply of
homes at affordable prices across most of our markets.
We believe our business is well positioned with a broad geographic footprint, affordable product offerings, a
balanced supply of finished lots, land and homes, a strong balance sheet and liquidity position and experienced personnel
across our operating markets. We remain focused on growing our revenues and profitability, generating consistently
strong annual cash flows from operations and managing our product offerings, pricing, sales pace and inventory levels to
optimize the return on our inventory investments.
In fiscal 2019, our number of homes closed and home sales revenues increased 10% and 9%, respectively,
compared to the prior year. Our pre-tax income was $2.1 billion in both fiscal 2019 and 2018. Our pre-tax operating
margin was 12.1% in fiscal 2019 compared to 12.8% in fiscal 2018. Cash provided by our homebuilding operations was
$1.4 billion in fiscal 2019 compared to $1.0 billion in fiscal 2018. In fiscal 2019, our homebuilding return on inventory
(ROI) was 18.1% compared to 20.2% in fiscal 2018. Homebuilding ROI is calculated as homebuilding pre-tax income
for the year divided by average inventory. Average inventory in the ROI calculation is the sum of ending inventory
balances for the trailing five quarters divided by five.
Within our homebuilding land and lot portfolio, our lots controlled under purchase contracts represent 60% of the
lots owned and controlled at September 30, 2019 compared to 57% at September 30, 2018. Growing our majority-owned
Forestar lot development operations is advancing our homebuilding strategy of increasing our controlled finished lot
pipeline.
We believe that housing demand in our individual operating markets is tied closely to each market’s economy.
Therefore, we expect that housing market conditions will vary across our markets. If the U.S. economy continues to
grow, we expect to see solid housing demand, concentrated in markets where job growth is occurring and new home
prices remain affordable relative to household incomes. The pace and sustainability of new home demand and our future
results could be negatively affected by weakening economic conditions, decreases in the level of employment and
housing demand, decreased home affordability, increases in mortgage interest rates or tightening of mortgage lending
standards.
27
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 make opportunistic
strategic investments. This strategy includes the following initiatives:
• Developing and retaining highly experienced and productive teams of personnel throughout our company that
are aligned and focused on continuous improvement in our operational execution and financial performance.
• Maintaining a 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 of our markets relative to the local new home demand.
Increasing the amount of land and finished lots controlled through purchase contracts by expanding
relationships with land developers across the country and continuing to assist our majority-owned Forestar lot
development subsidiary with the growth of their operations.
• Opportunistically pursuing acquisitions to enhance our operations and improve returns.
• 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.
• Ensuring that our financial services business provides high quality mortgage and title services to homebuyers
efficiently and effectively.
•
Investing in the construction of garden style 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 maintain
and improve our financial and competitive position and balance sheet strength. 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.
28
Key Results
Key financial results as of and for our fiscal year ended September 30, 2019, as compared to fiscal 2018 (or from
the acquisition date of October 5, 2017 through September 30, 2018 for Forestar’s results), were as follows:
Homebuilding:
• Homebuilding revenues increased 9% to $17.0 billion compared to $15.6 billion.
• Homes closed increased 10% to 56,975 homes, and the average closing price of those homes was $297,100.
• Net sales orders increased 7% to 56,565 homes, and the value of net sales orders increased 7% to $16.8
billion.
•
Sales order backlog increased 2% to 13,613 homes, and the value of sales order backlog increased 3% to $4.1
billion.
• Home sales gross margin was 20.2% compared to 21.3%.
• Homebuilding SG&A expense was 8.7% of homebuilding revenues compared to 8.6%.
• Homebuilding pre-tax income was $1.9 billion compared to $2.0 billion.
• Homebuilding pre-tax income was 11.2% of homebuilding revenues compared to 12.5%.
• Homebuilding return on inventory was 18.1% compared to 20.2%.
• Net cash provided by homebuilding operations was $1.4 billion compared to $1.0 billion.
• Homebuilding cash and cash equivalents totaled $1.0 billion compared to $1.1 billion.
• Homebuilding inventories totaled $10.3 billion compared to $9.9 billion.
• Homes in inventory totaled 27,700 compared to 27,900.
• Owned lots totaled 121,400 compared to 124,300, and lots controlled through purchase contracts increased to
185,900 from 164,200.
• Homebuilding debt decreased to $2.0 billion from $2.4 billion.
• Homebuilding debt to total capital improved to 17.0% compared to 21.4%.
29
Forestar:
•
•
•
•
•
•
Forestar’s revenues increased 292% to $428.3 million compared to $109.2 million. Revenues in fiscal 2019
and 2018 included $326.6 million and $39.1 million, respectively, of revenue from land and lot sales to our
homebuilding segment.
Forestar’s lot sales increased 223% to 4,132 compared to 1,279. Lot sales to D.R. Horton were 3,728
compared to 642.
Forestar’s pre-tax income was $45.7 million compared to $48.7 million.
Forestar’s pre-tax income was 10.7% of Forestar revenues compared to 44.6%.
Forestar’s cash and cash equivalents totaled $382.8 million compared to $318.8 million.
Forestar’s inventories totaled $1.0 billion compared to $498.0 million.
• Owned and controlled lots totaled 38,300 compared to 20,100. Of these lots, 23,400 were under contract to
sell to or subject to a right of first offer with D.R. Horton compared to 13,600.
•
Forestar’s debt was $460.5 million compared to $111.7 million.
Financial Services:
•
•
•
Financial services revenues increased 18% to $441.7 million compared to $375.3 million.
Financial services pre-tax income increased 41% to $166.3 million compared to $117.8 million.
Financial services pre-tax income was 37.6% of financial services revenues compared to 31.4%.
Consolidated Results:
• Consolidated pre-tax income increased 3% to $2.1 billion.
• Consolidated pre-tax income was 12.1% of consolidated revenues compared to 12.8%.
•
Income tax expense was $506.7 million compared to $597.7 million.
• Net income attributable to D.R. Horton increased 11% to $1.6 billion compared to $1.5 billion.
• Diluted net income per common share attributable to D.R. Horton increased 13% to $4.29 compared to $3.81.
• Net cash provided by operations was $892.1 million compared to $545.2 million.
•
Stockholders’ equity was $10.0 billion compared to $9.0 billion.
• Book value per common share increased 14% to $27.20 compared to $23.88.
• Debt to total capital improved to 25.3% compared to 26.3%.
30
Results of Operations — Homebuilding
Our operating segments are our 52 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:
Midwest:
Southeast:
Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania,
South Carolina and Virginia
Colorado, Illinois, Indiana, Iowa, Minnesota and Ohio
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, 2019 and 2018. For similar operating and financial
data and discussion of our fiscal 2018 results compared to our fiscal 2017 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, 2018, which was filed with the SEC on November 16, 2018.
Net Homes Sold
Net Sales Orders (1)
Fiscal Year Ended September 30,
Value (In millions)
Average Selling Price
2019
2018
%
Change
2019
7,941
3,224
18,609
16,278
2,797
7,716
56,565
6,994
2,209
17,380
15,317
3,179
7,661
52,740
14 % $ 2,291.1
46 % 1,127.8
7 % 5,011.2
6 % 4,123.5
750.6
1 % 3,539.2
7 % $16,843.4
(12)%
2018
$ 1,988.8
864.3
4,640.7
3,849.8
784.4
3,632.7
$15,760.7
%
Change
2019
15 % $ 288,500
30 % 349,800
8 % 269,300
7 % 253,300
(4)% 268,400
(3)% 458,700
7 % $ 297,800
2018
$ 284,400
391,300
267,000
251,300
246,700
474,200
$ 298,800
%
Change
1 %
(11)%
1 %
1 %
9 %
(3)%
— %
East .....................
Midwest ..............
Southeast.............
South Central ......
Southwest............
West ....................
_____________
(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.
Cancelled Sales Orders
2019
2018
2,155
680
5,410
4,751
969
1,323
2,031
299
5,655
4,408
1,031
1,378
Sales Order Cancellations
Fiscal Year Ended September 30,
Value (In millions)
2018
2019
$
607.3
$
570.0
229.2
1,444.4
1,193.2
247.0
614.0
115.1
1,502.5
1,091.9
251.8
661.3
15,288
14,802
$ 4,335.1
$ 4,192.6
Cancellation Rate (1)
2019
2018
21%
17%
23%
23%
26%
15%
21%
23%
12%
25%
22%
24%
15%
22%
East .....................
Midwest ..............
Southeast.............
South Central ......
Southwest............
West ....................
_____________
(1) Cancellation rate represents the number of cancelled sales orders divided by gross sales orders.
31
Net Sales Orders
The number of net sales orders increased 7% during 2019 compared to 2018, with increases in most of our regions. The
value of net sales orders increased 7% to $16.8 billion (56,565 homes) in 2019 from $15.8 billion (52,740 homes) in 2018.
The average selling price of homes sold during fiscal 2019 was $297,800, essentially unchanged from the prior year.
Higher sales volumes in our East and Midwest regions reflect our acquisitions of the homebuilding operations of
Terramor Homes, Westport Homes and Classic Builders in early fiscal 2019, which added 262 net sales orders to the East
region’s results and 1,199 net sales orders to the Midwest region's results. Lower sales volume in our Southwest region
during 2019 was due to a decrease in sales orders in our Phoenix market. Our sales order cancellation rate (cancelled sales
orders divided by gross sales orders for the period) was 21% in 2019 compared to 22% in 2018.
We believe our business is well positioned to continue to generate increased sales volume; however, our future sales
volumes will depend on new home demand in each of our operating markets and our ability to successfully implement our
operating strategies.
Homes in Backlog
2019
2018
%
Change
Sales Order Backlog
As of September 30,
Value (In millions)
Average Selling Price
2019
2018
%
Change
2019
2018
%
Change
East ...................
Midwest............
Southeast ..........
South Central....
Southwest .........
West ..................
1,916
1,063
4,277
4,166
815
1,376
1,841
4 % $
576.1
$
548.6
5 % $ 300,700
$ 298,000
1 %
442
140 %
364.7
179.2
104 % 343,100
405,400
(15)%
4,221
4,492
928
1,447
1 % 1,219.5
(7)% 1,084.0
(12)%
(5)%
241.6
654.2
1,172.3
1,151.8
251.7
725.3
4 % 285,100
277,700
(6)% 260,200
256,400
(4)% 296,400
271,200
(10)% 475,400
501,200
13,613
13,371
2 % $ 4,140.1
$ 4,028.9
3 % $ 304,100
$ 301,300
3 %
1 %
9 %
(5)%
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.
32
Homes Closed
Homes Closed and Home Sales Revenue
Fiscal Year Ended September 30,
Value (In millions)
Average Selling Price
2019
2018
%
Change
2019
2018
%
Change
2019
2018
East .....................
Midwest ..............
Southeast.............
South Central ......
Southwest............
West ....................
7,928
3,193
18,553
16,604
2,910
7,787
6,697
2,186
17,216
14,940
3,094
7,724
18 % $ 2,285.0
$ 1,893.0
21 % $ 288,200
$ 282,700
46 % 1,113.8
857.5
30 % 348,800
392,300
(11)%
8 % 4,964.0
11 % 4,191.3
(6)%
760.6
4,573.3
3,760.4
725.4
9 % 267,600
265,600
11 % 252,400
251,700
5 % 261,400
234,500
1 % 3,610.3
3,692.4
(2)% 463,600
478,000
56,975
51,857
10 % $16,925.0
$15,502.0
9 % $ 297,100
$ 298,900
%
Change
2 %
1 %
— %
11 %
(3)%
(1)%
Home Sales Revenue
Revenues from home sales increased 9% to $16.9 billion (56,975 homes closed) in 2019 from $15.5 billion (51,857
homes closed) in 2018. Home sales revenues increased in most of our regions primarily due to an increase in the number of
homes closed.
The number of homes closed in fiscal 2019 increased 10% from 2018. The increases in our East and Midwest regions
reflect our acquisitions of the homebuilding operations of Terramor Homes, Westport Homes and Classic Builders in early
fiscal 2019, which added 266 closings to the East region’s results and 1,157 closings to the Midwest region's results. Lower
home closings volume in our Southwest region during 2019 was due to a decrease in closings in our Phoenix market. The
average selling price of homes closed during fiscal 2019 was $297,100, down slightly from the prior year. Decreases in the
average selling price of homes closed in the Midwest and West regions were largely offset by an increase in the average
selling price in the Southwest region.
Homebuilding Operating Margin Analysis
Gross profit — home sales.....................................................................................................
Gross profit — land/lot sales and other .................................................................................
Inventory and land option charges.........................................................................................
Gross profit — total homebuilding ........................................................................................
Selling, general and administrative expense..........................................................................
Gain on sale of assets.............................................................................................................
Other (income) .......................................................................................................................
Homebuilding pre-tax income ...............................................................................................
Home Sales Gross Profit
Percentages of Related Revenues
Fiscal Year Ended September 30,
2019
2018
20.2 %
18.3 %
(0.3)%
19.9 %
8.7 %
— %
(0.1)%
11.2 %
21.3 %
18.6 %
(0.3)%
21.0 %
8.6 %
(0.1)%
— %
12.5 %
Gross profit from home sales increased 4% to $3.4 billion in 2019 from $3.3 billion in 2018 and decreased 110 basis
points to 20.2% as a percentage of home sales revenues. The percentage decrease resulted from decreases of 130 basis points
due to the average selling price of our homes closed decreasing while the average cost increased and 10 basis points from an
increase in the amount of purchase accounting adjustments for recent acquisitions, partially offset by improvements of 20
basis points due to a reduction in warranty and construction defect expenses and 10 basis points due to a decrease in the
amortization of capitalized interest.
33
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.
Land/Lot Sales and Other Revenues
Land sales and other revenues from our homebuilding operations were $91.9 million and $121.8 million in fiscal 2019
and 2018, 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, 2019, our homebuilding operations had $19.8 million of land held for sale that we
expect to sell in the next twelve months.
Inventory and Land Option Charges
At the end of each quarter during fiscal 2019, we reviewed the performance and outlook for all of our communities and
land inventories for indicators of potential impairment and performed detailed impairment evaluations and analyses when
necessary. As of September 30, 2019, we performed detailed impairment evaluations of communities and land inventories
with a combined carrying value of $55.0 million and recorded impairment charges of $6.3 million during the fourth quarter to
reduce the carrying value of impaired communities to fair value. Total homebuilding impairment charges during fiscal 2019
and 2018 were $24.9 million and $10.9 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. Also, if housing or economic conditions weaken in specific markets in which we operate, or if conditions
weaken in the broader economy or homebuilding industry, we may be required to evaluate additional communities for
potential impairment. These evaluations could result in additional impairment charges.
During fiscal 2019 and 2018, earnest money and pre-acquisition cost write-offs related to land purchase contracts that
we have terminated or expect to terminate were $28.3 million and $13.4 million, respectively. Total inventory and land option
charges for fiscal 2018 also included a charge of $24.5 million related to the settlement of an outstanding dispute associated
with a land transaction.
Selling, General and Administrative (SG&A) Expense
SG&A expense from homebuilding activities increased 10% to $1.5 billion in fiscal 2019 from $1.3 billion in fiscal
2018. SG&A expense as a percentage of homebuilding revenues was 8.7% and 8.6% in fiscal 2019 and 2018, respectively.
Employee compensation and related costs represented 72% of SG&A costs in both fiscal 2019 and 2018. These costs
increased 11% to $1.1 billion in 2019 from $964.2 million in 2018 due to an increase in the number of employees as
compared to the prior year. Our homebuilding operations employed 6,810 and 6,419 employees at September 30, 2019 and
2018, 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.
34
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 5% to $104.7 million in fiscal 2019 from $109.9 million in fiscal 2018. The decrease was
due to a decrease in our average homebuilding debt in fiscal 2019 compared to the prior year. Interest charged to cost of sales
was 0.9% and 1.1% of total cost of sales (excluding inventory and land option charges) in fiscal 2019 and 2018, respectively.
Gain on Sale of Assets
Gain on sale of assets from our homebuilding operations was $2.0 million in fiscal 2019 compared to $15.8 million in
fiscal 2018. The higher gain on sale during the prior year primarily resulted from the sale of rental units in our homebuilding
segment’s Southeast region.
Other Income
Other income, net of other expenses, included in our homebuilding operations was $9.5 million in fiscal 2019
compared to $7.2 million in fiscal 2018. 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 Acquisitions
During fiscal 2019, we acquired the homebuilding operations of Westport Homes, Classic Builders and Terramor
Homes for $325.9 million. The assets acquired included approximately 700 homes in inventory, 4,500 lots and control of
approximately 4,300 additional lots through land purchase contracts. We also acquired a sales order backlog of approximately
700 homes. Westport Homes operates in Indianapolis and Fort Wayne, Indiana, and Columbus, Ohio; Classic Builders
operates in Des Moines, Iowa; and Terramor Homes operates in Raleigh, North Carolina.
35
Homebuilding Results by Reporting Region
Fiscal Year Ended September 30,
2019
Homebuilding
Pre-tax
Income (1)
Homebuilding
Revenues
% of
Revenues
Homebuilding
Revenues
(In millions)
2018
Homebuilding
Pre-tax
Income (1)
% of
Revenues
$
2,290.2
$
1,123.1
4,977.8
4,202.4
772.6
3,650.8
238.8
57.7
584.7
551.1
100.4
378.0
10.4% $
1,893.4
$
5.1%
11.7%
13.1%
13.0%
10.4%
858.9
4,578.6
3,769.9
768.7
3,754.3
217.3
77.5
536.0
506.1
97.4
522.9
$
17,016.9
$
1,910.7
11.2% $
15,623.8
$
1,957.2
11.5%
9.0%
11.7%
13.4%
12.7%
13.9%
12.5%
East................................
Midwest.........................
Southeast .......................
South Central.................
Southwest ......................
West...............................
_____________
(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 21% in fiscal 2019 compared to fiscal 2018, primarily due to an
increase in the number of homes closed in our Carolina markets. The acquisition of Terramor Homes in early fiscal 2019
contributed $85.0 million of revenues in the current year. The region generated pre-tax income of $238.8 million in 2019
compared to $217.3 million in 2018. Gross profit from home sales as a percentage of home sales revenue (home sales
gross profit percentage) decreased by 130 basis points in 2019 compared to 2018, due to the average cost of homes
closed increasing by more than the average selling price. As a percentage of homebuilding revenues, SG&A expenses
decreased by 30 basis points in 2019 compared to 2018.
Midwest Region — Homebuilding revenues increased 31% in fiscal 2019 compared to fiscal 2018. The
acquisitions of Westport Homes and Classic Builders in early fiscal 2019 contributed $328.8 million of revenues in the
current year. The region generated pre-tax income of $57.7 million in 2019 compared to $77.5 million in 2018. Home
sales gross profit percentage decreased by 360 basis points in 2019 compared to 2018, largely due to purchase
accounting adjustments related to the two acquisitions. As a percentage of homebuilding revenues, SG&A expenses
increased by 80 basis points in 2019 compared to 2018, primarily due to the increases in employee compensation and
other costs associated with the two acquisitions.
Southeast Region — Homebuilding revenues increased 9% in fiscal 2019 compared to fiscal 2018, primarily due to
an increase in the number of homes closed in our Florida markets. The region generated pre-tax income of $584.7
million in 2019 compared to $536.0 million in 2018. The region’s fiscal 2018 results include a $24.5 million inventory
and land option charge related to the settlement of an outstanding dispute associated with a land transaction and a $13.4
million gain on the sale of multi-family rental units in one community. Home sales gross profit percentage decreased by
10 basis points in 2019 compared to 2018. As a percentage of homebuilding revenues, SG&A expenses increased by 10
basis points in 2019 compared to 2018.
36
South Central Region — Homebuilding revenues increased 11% in fiscal 2019 compared to fiscal 2018, primarily
due to an increase in the number of homes closed in our Houston and Fort Worth markets. The region generated pre-tax
income of $551.1 million in 2019 compared to $506.1 million in 2018. Home sales gross profit percentage decreased by
50 basis points in 2019 compared to 2018, due to the average cost of homes closed increasing by more than the average
selling price. As a percentage of homebuilding revenues, SG&A expenses decreased by 30 basis points in 2019
compared to 2018.
Southwest Region — Homebuilding revenues increased 1% in fiscal 2019 compared to fiscal 2018. The region
generated pre-tax income of $100.4 million in 2019 compared to $97.4 million in 2018. Home sales gross profit
percentage increased by 130 basis points in 2019 compared to 2018, primarily due to the average selling price of homes
closed increasing by more than the average cost of those homes. The gross profit percentage was also positively
impacted by a decrease in warranty and construction defect costs. The region’s fiscal 2018 results include $13.1 million
of profit generated from a land sale in our Phoenix market. As a percentage of homebuilding revenues, SG&A expenses
increased by 20 basis points in 2019 compared to 2018.
West Region — Homebuilding revenues decreased 3% in fiscal 2019 compared to fiscal 2018, due to a decrease in
the average selling price of homes closed. The region generated pre-tax income of $378.0 million in 2019 compared to
$522.9 million in 2018. Home sales gross profit percentage decreased by 270 basis points in 2019 compared to 2018,
primarily due to the average selling price decreasing while the average cost of those homes increased slightly. As a
percentage of homebuilding revenues, SG&A expenses increased by 50 basis points in 2019 compared to 2018.
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, 2019 and 2018 are summarized as follows:
Construction
in Progress
and
Finished
Homes
Residential
Land/Lots
Developed
and Under
Development
September 30, 2019
Land Held
for
Development
(In millions)
Land Held
for Sale
Total
Inventory
East............................................... $
Midwest........................................
Southeast ......................................
South Central ...............................
Southwest.....................................
West..............................................
Corporate and unallocated (1)......
697.1
$
581.2
$
10.5
$
— $
473.9
1,434.7
1,215.4
221.8
1,089.0
117.1
361.1
1,299.9
1,317.5
335.6
950.6
110.2
1.8
31.8
0.3
1.6
13.9
0.8
—
1.6
—
15.4
2.5
0.3
1,288.8
836.8
2,768.0
2,533.2
574.4
2,056.0
228.4
$
5,249.0
$
4,956.1
$
60.7
$
19.8
$
10,285.6
Construction
in Progress
and
Finished
Homes
Residential
Land/Lots
Developed
and Under
Development
September 30, 2018
Land Held
for
Development
(In millions)
Land Held
for Sale
Total
Inventory
East............................................... $
Midwest........................................
Southeast ......................................
South Central ...............................
Southwest.....................................
West..............................................
Corporate and unallocated (1)......
648.6
$
529.5
$
10.1
$
369.9
1,388.4
1,222.5
194.8
1,146.5
113.7
208.0
1,248.5
1,216.3
303.2
1,076.1
107.7
1.8
31.5
0.3
1.7
14.4
1.4
$
3.8
3.4
0.3
0.3
—
31.5
0.9
$
5,084.4
$
4,689.3
$
61.2
$
40.2
$
1,192.0
583.1
2,668.7
2,439.4
499.7
2,268.5
223.7
9,875.1
_____________
(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, 2019 and 2018 are
summarized as follows:
September 30, 2019
Lots Controlled
Under
Land and Lot
Purchase
Contracts (2)(3)
30,500
10,900
73,300
51,400
5,800
14,000
185,900
60%
Total Land/Lots
Owned and
Controlled
Homes in
Inventory (4)
41,500
19,200
108,100
93,000
12,500
33,000
307,300
100%
3,900
2,200
8,900
7,900
1,300
3,500
27,700
September 30, 2018
Lots Controlled
Under
Land and Lot
Purchase
Contracts (2)(3)
19,400
9,300
70,400
45,700
5,000
14,400
164,200
57%
Total Land/Lots
Owned and
Controlled
Homes in
Inventory (4)
31,300
13,100
107,500
88,600
12,600
35,400
288,500
100%
3,700
1,700
8,900
8,400
1,400
3,800
27,900
Land/Lots
Owned (1)
11,000
8,300
34,800
41,600
6,700
19,000
121,400
40%
Land/Lots
Owned (1)
11,900
3,800
37,100
42,900
7,600
21,000
124,300
43%
East....................................................................
Midwest.............................................................
Southeast ...........................................................
South Central.....................................................
Southwest ..........................................................
West...................................................................
East....................................................................
Midwest.............................................................
Southeast ...........................................................
South Central.....................................................
Southwest ..........................................................
West...................................................................
_____________
(1) Land/lots owned include approximately 36,100 and 35,100 owned lots that are fully developed and ready for home
construction at September 30, 2019 and 2018, respectively. Land/lots owned also include land held for development
representing 1,700 lots at both September 30, 2019 and 2018.
(2) The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30, 2019 and 2018
was $7.2 billion and $6.5 billion, respectively, secured by earnest money deposits of $515.4 million and $401.1 million,
respectively. The total remaining purchase price of lots controlled through land and lot purchase contracts at September 30,
2019 and 2018 included $953.8 million and $522.2 million, respectively, related to lot purchase contracts with Forestar,
secured by $88.7 million and $48.0 million, respectively, of earnest money.
(3) Lots controlled at September 30, 2019 include approximately 23,400 lots owned or controlled by Forestar, 12,800 of which our
homebuilding divisions have under contract to purchase and 10,600 of which our homebuilding divisions have a right of first
offer to purchase. Of these, approximately 8,700 lots were in our Southeast region, 4,600 lots were in our South Central region,
3,800 lots were in our West region, 2,600 lots were in our East region, 2,400 lots were in our Southwest region and 1,300 lots
were in our Midwest region. Lots controlled at September 30, 2018 included approximately 13,600 lots owned or controlled by
Forestar, 5,500 of which our homebuilding divisions had under contract to purchase and 8,100 of which our homebuilding
divisions had a right of first offer to purchase.
(4) Approximately 16,000 and 16,400 of our homes in inventory were unsold at September 30, 2019 and 2018, respectively. 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. At September 30, 2018, approximately 4,000 of our unsold homes were completed, of
which approximately 400 homes had been completed for more than six months. Homes in inventory exclude approximately
1,900 and 1,800 model homes at September 30, 2019 and 2018, respectively.
39
Results of Operations — Forestar
On October 5, 2017, we acquired 75% of the outstanding shares of Forestar and as of September 30, 2019 owned
approximately 66% of its outstanding shares. Forestar is a publicly traded residential lot development company with
operations in 51 markets and 20 states as of September 30, 2019. 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 fiscal 2019 and from the date of acquisition through September 30,
2018 (referred to as fiscal 2018 in the discussion below) were as follows:
Year Ended
September 30, 2019
For the Period from
October 5, 2017 to
September 30, 2018
(In millions)
Residential land and lot sales ....................................................................................
Commercial tract sales ..............................................................................................
Other ..........................................................................................................................
Total revenues.......................................................................................................
Cost of sales...............................................................................................................
Selling, general and administrative expense .............................................................
Equity in earnings of unconsolidated entities............................................................
Gain on sale of assets ................................................................................................
Interest expense .........................................................................................................
Other (income) expense.............................................................................................
Income before income taxes.................................................................................
$
$
$
407.5
18.5
2.3
428.3
362.7
28.9
(0.5)
(3.0)
—
(5.5)
45.7
$
$
$
99.1
9.1
1.0
109.2
69.0
32.8
(12.4)
(27.7)
5.8
(7.0)
48.7
At September 30, 2019, Forestar owned directly or controlled through land and lot purchase contracts approximately
38,300 residential lots, of which approximately 4,400 are fully developed. Approximately 23,400 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 700 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 2019 and 2018, 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, 2019
For the Period from
October 5, 2017 to
September 30, 2018
(Dollars in millions)
Total residential single-family lots sold.....................................................................
Residential single-family lots sold to D.R. Horton ...................................................
Residential lot sales revenues from sales to D.R. Horton .........................................
Residential tract acres sold to D.R. Horton ...............................................................
Residential land sales revenues from sales to D.R. Horton.......................................
$
$
4,132
3,728
315.7
290
10.9
$
$
1,279
642
37.1
79
2.0
SG&A expense for fiscal 2019 and 2018 includes charges of $2.1 million and $0.9 million, respectively, related to the
shared services agreement between Forestar and D.R. Horton whereby D.R. Horton provides Forestar with certain
administrative, compliance, operational and procurement services. SG&A expense for fiscal 2018 also includes $6.3
million of severance and change of control charges for Forestar’s executive officers that were triggered shortly after the
acquisition date.
Equity in earnings of unconsolidated entities for fiscal 2018 primarily relates to the sale of a multi-family joint
venture project in Nashville, Tennessee.
Gain on sale of assets during fiscal 2018 was primarily due to gains of $14.6 million related to the sale of Forestar’s
interest in a multi-family venture and $9.1 million related to the sale of water rights in East Texas.
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, 2019
and 2018.
Number of first-lien loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers ............................................
Number of homes closed by D.R. Horton.....................................................
Percentage of D.R. Horton homes financed by
DHI Mortgage ...........................................................................................
Number of total loans originated or brokered by
DHI Mortgage for D.R. Horton homebuyers ............................................
Total number of loans originated or brokered by
DHI Mortgage ...........................................................................................
Captive business percentage .........................................................................
Loans sold by DHI Mortgage to third parties ...............................................
Loan origination fees ....................................................................................
Sale of servicing rights and gains from
sale of mortgage loans...............................................................................
Other revenues ..............................................................................................
Total mortgage operations revenues..............................................................
Title policy premiums ...................................................................................
Total revenues ...............................................................................................
General and administrative expense..............................................................
Fiscal Year Ended September 30,
2019
2018
% Change
33,024
56,975
29,133
51,857
58%
56%
33,114
29,234
33,827
98%
32,849
30,107
97%
29,120
13%
10%
13%
12%
13%
Fiscal Year Ended September 30,
2019
2018
% Change
(In millions)
$
11.7
$
15.0
(22)%
319.4
24.4
355.5
86.2
441.7
293.0
265.1
18.7
298.8
76.5
375.3
272.6
(15.1)
117.8
20 %
30 %
19 %
13 %
18 %
7 %
17 %
41 %
Other (income) expense ................................................................................
(17.6)
Financial services pre-tax income.................................................................
$
166.3
$
Financial Services Operating Margin Analysis
Percentages of
Financial Services Revenues
Fiscal Year Ended September 30,
2019
2018
General and administrative expense...............................................................................
Other (income) expense .................................................................................................
Financial services pre-tax income ..................................................................................
66.3 %
(4.0)%
37.6 %
72.6 %
(4.0)%
31.4 %
41
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 2019, the volume of first-lien loans originated or brokered by DHI Mortgage for
our homebuyers increased 13% from the prior year, primarily as a result of an increase in the number of homes closed by
our homebuilding operations of 10%. The percentage of homes closed for which DHI Mortgage handled the
homebuyers’ financing was 58% and 56% in fiscal 2019 and 2018, respectively.
Homes closed by our homebuilding operations constituted 98% and 97% of DHI Mortgage loan originations in
fiscal 2019 and 2018, respectively. These percentages reflect DHI Mortgage’s consistent focus on the captive business
provided by our homebuilding operations.
The number of loans sold increased 13% in fiscal 2019 compared to the prior year. Virtually all of the mortgage
loans held for sale on September 30, 2019 were eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae.
Approximately 93% of the mortgage loans sold by DHI Mortgage during fiscal 2019 were sold to four major financial
entities, the largest of which purchased 32% of the total loans sold.
Financial Services Revenues and Expenses
Revenues from our mortgage operations increased 19% to $355.5 million in fiscal 2019 from $298.8 million in
fiscal 2018, while the number of loan originations increased 12% over that same period. Revenues increased at a higher
rate than origination volume primarily due to improved loan sale execution in the secondary market.
Our mortgage operations revenues were reduced by $0.8 million and $1.3 million in fiscal 2019 and 2018,
respectively, to increase our loss reserves for estimated future recourse obligations and other mortgage loans, and to
adjust certain mortgage loans held for sale to fair value. Our loss reserves for loan recourse obligations are estimated
based upon analysis of the volume of mortgages originated, loan repurchase requests received, actual repurchases and
losses through the disposition of such loans or requests and discussions with our mortgage purchasers. Actual losses on
mortgage loans may differ from our estimates, which may result in future changes to our loss reserves.
General and administrative (G&A) expense related to financial services operations increased 7% to $293.0 million
in fiscal 2019 from $272.6 million in the prior year. The increase was primarily due to an increase in employee related
costs. Our financial services operations employed 1,924 and 1,919 employees at September 30, 2019 and 2018,
respectively.
As a percentage of financial services revenues, G&A expense was 66.3% in fiscal 2019 compared to 72.6% in the
prior year. The lower percentage in fiscal 2019 was primarily due to improved loan sale execution on mortgage loan
originations and increased mortgage loan origination volume allowing us to better leverage G&A expenses.
Fluctuations in financial services G&A expense as a percentage of revenues can be expected to occur, as some
components of revenue may 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.
Results of Operations — Other Businesses
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
products, which typically accommodate 200 to 400 dwelling units, in high growth suburban markets. After DHI Communities
has completed construction and achieved a stabilized occupancy rate, the property is typically marketed for sale. We currently
have four projects under active construction and two projects that are substantially complete, one of which was under contract
to sell at September 30, 2019. During fiscal 2019, DHI Communities sold two multi-family rental properties for $133.4
million and recorded gains on sale totaling $51.9 million.
42
Results of Operations — Consolidated
Income before Income Taxes
Pre-tax income was $2.1 billion in both fiscal 2019 and 2018. In fiscal 2019, our homebuilding, financial services
and other businesses generated pre-tax income of $1.9 billion, $166.3 million and $55.5 million, respectively. In fiscal
2018, our homebuilding and financial services businesses generated pre-tax income of $2.0 billion and $117.8 million,
respectively.
Income Taxes
Our income tax expense was $506.7 million and $597.7 million in fiscal 2019 and 2018, respectively, and our
effective tax rate was 23.8% and 29.0% in those years. The effective tax rates reflect the impact of the Tax Cuts and Jobs
Act (Tax Act), which was enacted into law in December 2017. The Tax Act reduced the federal corporate tax rate from
35% to 21% for all corporations effective January 1, 2018. For fiscal year companies, the change in law required the
application of a blended tax rate in the year of change, which for us was 24.5% for the fiscal year ended September 30,
2018. For the fiscal year ended September 30, 2019 and thereafter, the applicable statutory federal tax rate is 21%. The
Tax Act also repealed the domestic production activities deduction effective for us beginning October 1, 2018. The
effective tax rates also include a tax benefit related to stock-based compensation and an expense for state income taxes.
The fiscal year 2018 effective tax rate also included the remeasurement of our deferred tax assets and liabilities as a
result of the Tax Act, the release of a valuation allowance against deferred tax assets related to Forestar and the
enactment of the Bipartisan Budget Act of 2018, which retroactively extended the expiration date of the federal energy
efficient home credit from December 31, 2016 until December 31, 2017.
Our deferred tax assets, net of deferred tax liabilities, were $181.8 million at September 30, 2019 compared to
$211.7 million at September 30, 2018. We have a valuation allowance related to state deferred tax assets for net
operating loss (NOL) carryforwards of $18.7 million at September 30, 2019 and $17.7 million at September 30, 2018
related to state deferred tax assets for NOL carryforwards that are more likely than not to expire before being realized.
We will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance
with respect to our remaining state NOL carryforwards. Any reversal of the valuation allowance in future periods will
impact our effective tax rate.
D.R. Horton has $16.4 million of tax benefits for state NOL carryforwards that expire at various times depending
on the tax jurisdiction. Of the total amount, $6.2 million of the tax benefits expire over the next ten years and the
remaining $10.2 million expires from fiscal years 2030 to 2039.
Forestar has $11.4 million of tax benefits for federal NOL carryforwards which have no expiration date.
Additionally, Forestar has $3.7 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.
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 2016 through 2019.
D.R. Horton is currently being audited by various states; however, to date, we are not aware of any significant findings
identified by the taxing authorities.
Forestar is subject to federal income tax and state income tax in multiple jurisdictions. The federal statute of
limitations for tax years prior to 2017 is effectively closed. The statute of limitations in major state jurisdictions for tax
years prior to 2015 is closed. The Internal Revenue Service recently completed an audit of Forestar’s 2016 tax year with
no changes. Forestar is not currently being audited by any state jurisdictions.
43
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 market conditions, to increase our investments
in homes, finished lots, land and land development to expand our operations and grow our revenues and profitability, as
well as to consider opportunistic strategic investments as they arise.
At September 30, 2019, our ratio of debt to total capital (notes payable divided by stockholders’ equity plus notes
payable) was 25.3% compared to 26.3% at September 30, 2018. Our ratio of homebuilding debt to total capital
(homebuilding notes payable divided by stockholders’ equity plus homebuilding notes payable) was 17.0% compared to
21.4% at September 30, 2018. 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 2020. 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 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, of which $394.3 million remains available. 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 will provide
sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $500
million principal amount of homebuilding senior notes and $118.9 million principal amount of Forestar’s convertible
senior notes in fiscal 2020.
Capital Resources - Homebuilding
Cash and Cash Equivalents — At September 30, 2019, cash and cash equivalents of our homebuilding segment
totaled $1.0 billion.
Bank Credit Facility — At September 30, 2019, we had a $1.325 billion senior unsecured homebuilding revolving
credit facility with an uncommitted accordion feature that could increase the size of the facility to $1.9 billion, subject to
certain conditions and availability of additional bank commitments. The facility also provided for the issuance of letters
of credit with a sublimit equal to approximately 50% 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. At September 30, 2019, there were no borrowings outstanding and $141.2
million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately $1.2
billion. Borrowings and repayments under the facility totaled $2.1 billion each during fiscal 2019.
In October 2019, the homebuilding revolving credit facility was amended to increase its capacity to $1.59 billion
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 amendment also extended the facility’s maturity date
from September 25, 2023 to October 2, 2024 and increased the letter of credit sublimit to 100% of the revolving credit
commitment.
44
Our homebuilding revolving credit facility imposes restrictions on our operations and activities, including requiring
the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a
certain level. These covenants are measured as defined in the credit agreement governing the facility and are reported to
the lenders quarterly. A failure to comply with these financial covenants could allow the lending banks to terminate the
availability of funds under the revolving credit facility or cause any outstanding borrowings to become due and payable
prior to maturity. The credit agreement governing the facility imposes restrictions on the creation of secured debt and
liens. At September 30, 2019, we were in compliance with all of the covenants, limitations and restrictions of our
homebuilding revolving credit facility.
Public Unsecured Debt — We have $1.95 billion principal amount of homebuilding senior notes outstanding as of
September 30, 2019 that mature from February 2020 through August 2023. In March 2019, we repaid $500 million
principal amount of our 3.75% senior notes at maturity. The indenture governing our senior notes imposes restrictions on
the creation of secured debt and liens. At September 30, 2019, we were in compliance with all of the limitations and
restrictions associated with our public debt obligations.
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%.
Repurchases of Common Stock — During fiscal 2019, we repurchased 11.9 million shares of our common stock for
$479.8 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, which replaced the previous
authorizations. The new authorizations have no expiration date. At September 30, 2019, the full amount of the debt
repurchase authorization was remaining and $895.7 million of the equity repurchase authorization was remaining.
Capital Resources - Forestar
At September 30, 2019, Forestar had cash and cash equivalents of $382.8 million. Forestar obtained a $380 million
senior unsecured bank credit facility in August 2018 and issued $350 million principal amount of senior notes in April
2019. In September 2018, Forestar filed an effective shelf registration statement with the SEC, registering $500 million
of equity securities, and in September 2019, Forestar issued common stock that provided net proceeds of $100.7 million.
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.
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. Letters of credit issued under the facility reduce
the available borrowing capacity. At September 30, 2019, there were no borrowings outstanding and $29.7 million of
letters of credit issued under the revolving credit facility. Borrowings under the revolving credit facility are subject to a
borrowing base based on Forestar’s book value of its real estate assets and unrestricted cash. At September 30, 2019, the
borrowing base limited the available capacity under the revolving credit facility to $339.6 million. Borrowings and
repayments under the facility totaled $85 million each during fiscal 2019.
In October 2019, the Forestar revolving credit facility was amended to extend its maturity date from August 16,
2021 to October 2, 2022. The maturity date may 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.
45
The 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. At September 30, 2019, Forestar was in compliance with all of
the covenants, limitations and restrictions of its revolving credit facility.
Unsecured Debt — Forestar has $118.9 million principal amount of 3.75% convertible senior notes outstanding as
of September 30, 2019 that are expected to be settled in cash upon their maturity on March 1, 2020. In April 2019,
Forestar issued $350 million principal amount of 8.0% senior notes pursuant to Rule 144A and Regulation S under the
Securities Act of 1933, as amended. The notes mature April 15, 2024, 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 8.5%. These notes may be redeemed prior to maturity, subject to certain limitations and premiums
defined in the indenture agreement.
Forestar’s revolving credit facility, its senior notes and its convertible senior notes are not guaranteed by D.R.
Horton, Inc. or any of the subsidiaries that guarantee our homebuilding debt.
Equity Offering — On September 30, 2019, Forestar issued 6.0 million shares of its common stock for $17.50 per
share in a public underwritten offering. Net proceeds to Forestar from this offering after deducting underwriting
discounts and commissions and other expenses were $100.7 million. As a result of the issuance, our ownership of
Forestar's outstanding common shares decreased from 75% to approximately 66%. Following the offering, $394.3
million remains available for issuance under Forestar’s shelf registration statement.
Capital Resources - Financial Services
Cash and Cash Equivalents — At September 30, 2019, cash and cash equivalents of our financial services
operations totaled $43.4 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 in accordance with the terms of the mortgage repurchase facility. The total
capacity of the facility is $900 million; however, the capacity increases, without requiring additional commitments, to
$1.1 billion for approximately 45 days at fiscal year end. The capacity of the facility can also be increased to $1.2 billion
subject to the availability of additional commitments. The maturity date of the facility is February 21, 2020.
As of September 30, 2019, $1.0 billion of mortgage loans held for sale with a collateral value of $972.0 million
were pledged under the mortgage repurchase facility. DHI Mortgage had an obligation of $888.9 million outstanding
under the mortgage repurchase facility at September 30, 2019 at a 3.7% annual interest rate.
The mortgage repurchase facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee
our homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum required
tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants are
measured and reported to the lenders monthly. At September 30, 2019, DHI Mortgage was in compliance with all of the
conditions and covenants of the mortgage repurchase facility.
In the past, DHI Mortgage has been able to renew or extend its mortgage credit facility at a sufficient capacity and
on satisfactory terms prior to its maturity, and obtain temporary additional commitments through amendments to the
credit agreement during periods of higher than normal volumes of mortgages held for sale. The liquidity of our financial
services business depends upon its continued ability to renew and extend the mortgage repurchase facility or to obtain
other additional financing in sufficient capacities.
46
Operating Cash Flow Activities
In fiscal 2019, net cash provided by operating activities was $892.1 million compared to $545.2 million in fiscal
2018. Cash provided by operating activities in the current year consisted of $1.4 billion of cash provided by our
homebuilding segment, partially offset by $395.7 million and $150.2 million of cash used in our Forestar and financial
services segments, respectively.
Cash provided from a decrease in construction in progress and finished homes inventory was $84.6 million in fiscal
2019 as our homes in inventory at September 30, 2019 remained relatively flat with the prior year. Cash used to increase
construction in progress and finished homes inventory was $482.8 million in fiscal 2018 as our homes in inventory
increased by approximately 3,300 homes at September 30, 2018 compared to September 30, 2017. During fiscal 2019,
cash used to increase residential land and lots was $676.4 million compared to $573.8 million in fiscal 2018. Of these
amounts, $513.2 million and $393.2 million, respectively, related to Forestar. The most significant source of cash
provided by operating activities in all years was net income.
Investing Cash Flow Activities
In fiscal 2019, net cash used in investing activities was $394.0 million compared to cash provided by investing
activities of $19.0 million in fiscal 2018. In fiscal 2019, we paid $315.8 million to purchase the homebuilding operations
of Westport Homes, Classic Builders and Terramor Homes. Proceeds from the sale of assets in fiscal 2019 included
$133.4 million related to the sale of two multi-family rental properties constructed by DHI Communities. In fiscal 2018,
we paid $558.3 million to purchase 75% of the outstanding shares of Forestar, which had $401.9 million of cash on the
acquisition date. Proceeds from the sale of assets in fiscal 2018 included $258.3 million related to Forestar, primarily
from the strategic sale of assets.
Financing Cash Flow Activities
We expect the short-term financing needs of our operations will be funded with existing cash, cash generated from
operations and borrowings under our credit facilities. Long-term financing needs for the growth of our homebuilding and
Forestar operations may be funded with the issuance of senior unsecured debt securities or equity securities through the
capital markets.
In fiscal 2019, net cash used in financing activities was $490.1 million, consisting primarily of note repayments,
repurchases of common stock and payments of cash dividends, largely offset by note proceeds. Note repayments of $2.7
billion included repayments of amounts drawn on our revolving credit facilities of $2.2 billion and repayment of $500
million principal amount of our 3.75% homebuilding senior notes at maturity. We also used cash of $479.8 million to
repurchase 11.9 million shares of our common stock and used $223.4 million to pay dividends to our common
stockholders. Note proceeds of $2.5 billion included draws of $2.2 billion on our revolving credit facilities and Forestar’s
issuance of $350 million principal amount of 8.0% senior notes due April 2024. Our financial services segment received
proceeds of $251.2 million from net advances under its mortgage repurchase facility. Additionally, Forestar’s issuance of
common stock resulted in $100.7 million of cash proceeds.
In fiscal 2018, net cash used in financing activities was $82.5 million, consisting primarily of note repayments,
payments of cash dividends and repurchases of common stock, largely offset by note proceeds. Note repayments of $2.2
billion included repayments of amounts drawn on our homebuilding revolving credit facility of $1.8 billion and our early
redemption of $400 million principal amount of our 3.625% senior notes due February 2018. We also used cash of
$188.4 million to pay dividends to our common stockholders and used $127.5 million to repurchase 2.8 million shares of
our common stock. Note proceeds of $2.2 billion included draws of $1.8 billion on our homebuilding revolving credit
facility and our issuance of $400 million principal amount of 2.55% senior notes due December 2020. Our financial
services segment received proceeds of $217.7 million from net advances under its mortgage repurchase facility.
Our Board of Directors approved and paid quarterly cash dividends of $0.15 per common share in fiscal 2019 and
$0.125 per common share in fiscal 2018. In November 2019, our Board of Directors approved a cash dividend of $0.175
per common share, payable on December 11, 2019, to stockholders of record on November 27, 2019. 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.
47
Contractual Cash Obligations, Commercial Commitments and Off-Balance Sheet Arrangements
Our primary contractual cash obligations are payments under our debt agreements and lease payments under
operating leases. We expect to fund our contractual obligations in the ordinary course of business through a combination
of our existing cash resources, cash flows generated from profits, our credit facilities or other bank financing, and the
issuance of new debt or equity securities through the public capital markets as market conditions may permit.
Our future cash requirements for contractual obligations as of September 30, 2019 are presented below.
Payments Due by Period
Total
Less Than
1 Year
1 - 3 Years
> 3 - 5 Years
(In millions)
More Than
5 Years
Notes Payable — Principal (1) .......................... $
3,410.9
$
1,605.3
$
753.7
$
1,051.9
$
Notes Payable — Interest (1) ............................
Operating Leases ...............................................
Purchase Obligations (2) ...................................
367.2
42.5
59.8
134.0
18.6
48.2
162.2
18.2
11.6
71.0
5.5
—
$
3,880.4
$
1,806.1
$
945.7
$
1,128.4
$
—
—
0.2
—
0.2
_______________
(1) Notes payable represents principal and interest payments due on our senior notes, our secured notes, our mortgage
subsidiary’s repurchase facility and our homebuilding and Forestar revolving credit facilities. Because the balances of our
revolving credit facilities were zero at September 30, 2019, we did not assume any principal or interest payments related to
these facilities in future periods. The interest obligation associated with our mortgage repurchase facility is based on its
annual effective rate of 3.7% and principal balance outstanding at September 30, 2019.
(2) Purchase obligations relate to our land and lot purchase contracts which enable us to control significant lot positions with
limited capital investment. Among our homebuilding land and lot purchase contracts at September 30, 2019, there were a
limited number of contracts, representing $59.8 million of remaining purchase price, subject to specific performance
provisions that may require us to purchase the land or lots upon the land sellers meeting their respective contractual
obligations. Of this amount, $13.2 million related to contracts between our homebuilding segment and Forestar. Further
information about our land purchase contracts is provided in the “Homebuilding Inventories, Land and Lot Position and
Homes in Inventory” section included herein.
At September 30, 2019, we had outstanding letters of credit of $171.7 million and surety bonds of $1.7 billion,
issued by third parties to secure performance under various contracts. We expect that our performance obligations
secured by these letters of credit and bonds will generally be completed in the ordinary course of business and in
accordance with the applicable contractual terms. When we complete our performance obligations, the related letters of
credit and bonds are generally released shortly thereafter, leaving us with no continuing obligations. We have no material
third-party guarantees.
Our mortgage subsidiary enters into various commitments related to the lending activities of our mortgage
operations. Further discussion of these commitments is provided in Item 7A “Quantitative and Qualitative Disclosures
About Market Risk” under Part II of this annual report on Form 10-K.
48
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, land 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.
Inflation
We may be adversely affected during periods of high inflation, primarily because of higher financing, land, labor
and material construction costs. We attempt to offset cost increases in one component with savings in another, and we
increase our sales prices and reduce customer sales incentives when housing market conditions permit. However, during
periods when housing market conditions are challenging, we may not be able to offset cost increases with higher selling
prices. In addition, higher mortgage interest rates reduce the affordability of our homes to prospective homebuyers.
49
Forward-Looking Statements
Some of the statements contained in this report, as well as in other materials we have filed or will file with the
Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to
analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act
of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on
management’s beliefs as well as assumptions made by, and information currently available to, management. These
forward-looking statements typically include the words “anticipate,” “believe,” “consider,” “continue,” “could,”
“estimate,” “expect,” “forecast,” “goal,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,”
“projection,” “seek,” “should,” “strategy,” “target,” “will,” “would” or other words of similar meaning. Any or all of the
forward-looking statements included in this report and in any other of our reports or public statements may not
approximate actual experience, and the expectations derived from them may not be realized, due to risks, uncertainties
and other factors. As a result, actual results may differ materially from the expectations or results we discuss in the
forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate
and other conditions;
constriction of the credit and public capital markets, which could limit our ability to access capital and
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;
the risks associated with our land and lot inventory;
our ability to effect our growth strategies, acquisitions or investments successfully;
the impact of an inflationary, deflationary or higher interest rate environment;
home warranty and construction defect claims;
the effects of health and safety incidents;
the effects of negative publicity;
supply shortages and other risks of acquiring land, building materials and skilled labor;
reductions in the availability of performance bonds;
increases in the costs of owning a home;
the effects of governmental regulations and environmental matters on our homebuilding and land
development operations;
the effects of governmental regulations on our financial services operations;
our ability to manage and service our debt and comply with related debt covenants, restrictions and
limitations;
competitive conditions within the homebuilding and financial services industries;
the effects of the loss of key personnel; and
information technology failures and data security breaches.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports
on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material
changes in performance and risk factors that have the potential to affect us is contained in Item 1A, “Risk Factors” under
Part I of this annual report on Form 10-K.
50
Critical Accounting Policies
General — A comprehensive enumeration of the significant accounting policies of D.R. Horton, Inc. and
subsidiaries is presented in Note A to the accompanying financial statements as of September 30, 2019 and 2018, and for
the years ended September 30, 2019, 2018 and 2017. Each of our accounting policies has been chosen based upon
current authoritative literature that collectively comprises U.S. Generally Accepted Accounting Principles (GAAP). In
instances where alternative methods of accounting are permissible under GAAP, we have chosen the method that most
appropriately reflects the nature of our business, the results of our operations and our financial condition, and have
consistently applied those methods over each of the periods presented in the financial statements. The Audit Committee
of our Board of Directors has reviewed and approved the accounting policies selected.
Revenue Recognition — We generally recognize homebuilding revenue and related profit at the time of the closing
of a sale, when title to and possession of the property are transferred to the buyer. Our performance obligation, to deliver
the agreed-upon home, is generally satisfied in less than one year from the original contract date. Proceeds from home
closings held for our benefit at title companies are included in homebuilding cash and cash equivalents in the
consolidated balance sheets.
When we execute sales contracts with our homebuyers, or when we require advance payment from homebuyers for
custom changes, upgrades or options related to their homes, we record the cash deposits received as liabilities until the
homes are closed or the contracts are cancelled. We either retain or refund to the homebuyer deposits on cancelled sales
contracts, depending upon the applicable provisions of the contract or other circumstances.
We rarely purchase land for resale, but periodically may elect to sell parcels of land that no longer fit into our
strategic operating plans. Revenue from land sales is typically recognized on the closing date, which is generally when
performance obligations are satisfied.
We recognize financial services revenues associated with our title operations as closing services are rendered and
title insurance policies are issued, both of which generally occur simultaneously as each home is closed. We transfer
substantially all underwriting risk associated with title insurance policies to third-party insurers. Revenues associated
with our mortgage operations primarily include net gains on the sale of mortgage loans and servicing rights. We typically
elect the fair value option for our mortgage loan originations whereby mortgage loans held for sale are recorded at fair
value based on either sale commitments or current market quotes and loan values are adjusted through revenues for
subsequent changes in fair value until the loans are sold. Expected gains and losses from the sale of servicing rights are
included in the measurement of all written loan commitments that are accounted for at fair value through revenues at the
time of commitment. We sell substantially all of the mortgages we originate and the related servicing rights to third-party
purchasers. Interest income is earned from the date a mortgage loan is originated until the loan is sold.
Mortgage loans are sold with limited recourse provisions, which can result in repurchases of loans previously sold
to investors or payments to reimburse investors for loan losses. Based on historical experience, discussions with our
mortgage purchasers, analysis of the volume of mortgages we originated and current housing and credit market
conditions, we estimate and record a loss reserve for mortgage loans held in portfolio and mortgage loans held for sale,
as well as known and projected mortgage loan repurchase requests.
We collect insurance commissions on homeowner policies placed with third party carriers through our 100%
owned insurance agency. We recognize revenue and a contract asset for estimated future renewals of these policies upon
issuance of the initial policy, the date at which the performance obligation is satisfied.
Inventories and Cost of Sales — Inventory includes the costs of direct land acquisition, land development and
home construction, capitalized interest, real estate taxes and direct overhead costs incurred during development and
home construction. Costs that we incur after development projects or homes are substantially complete, such as utilities,
maintenance, and cleaning, are charged to SG&A expense as incurred. All indirect overhead costs, such as compensation
of sales personnel, division and region management, and the costs of advertising and builder’s risk insurance are charged
to SG&A expense as incurred.
51
Land and development costs are typically allocated to individual residential lots on a pro-rata basis, and the costs
of residential lots are transferred to construction in progress when home construction begins. Home construction costs
are specifically identified and recorded to individual homes. Cost of sales for homes closed includes the specific
construction costs of each home and all applicable land acquisition, land development and related costs (both incurred
and estimated to be incurred) allocated to each residential lot based upon the total number of homes expected to be
closed in each community. Cost of sales for lots sold includes all applicable land acquisition, land development and
related costs (both incurred and estimated to be incurred) allocated to each residential lot in the community. Any changes
to the estimated total development costs subsequent to the initial home or lot closings in a community are generally
allocated on a pro-rata basis to the remaining homes or lots in the community associated with the relevant development
activity.
When a home is closed, we generally have not paid all incurred costs necessary to complete the home. We record a
liability and a charge to cost of sales for the amount estimated to ultimately be paid related to completed homes that have
been closed. We compare our home construction budgets to actual recorded costs to determine the additional costs
remaining to be paid on each closed home. We monitor the accrual by comparing actual costs incurred on closed homes
in subsequent months to the amounts previously accrued. Although actual costs to be paid in the future on previously
closed homes could differ from our current accruals, such differences have not been significant.
Each quarter, we review our communities and land inventories for indicators of potential impairment. We generally
review our inventory for impairment indicators at the community level, and the inventory within each community is
categorized as land held for development, residential land and lots developed and under development, land held for sale
and construction in progress and finished homes, based on the stage of production or plans for future development or
sale. A particular community often includes inventory in more than one category. In certain situations, inventory may be
analyzed separately for impairment purposes based on its product type or future plans. In reviewing each of our
communities, we determine if impairment indicators exist on inventory held and used by analyzing a variety of factors
including, but not limited to, the following:
•
•
•
•
•
•
gross margins on homes closed in recent months;
projected gross margins on homes sold but not closed;
projected gross margins based on community budgets;
trends in gross margins, average selling prices or cost of sales;
sales absorption rates; and
performance of other communities in nearby locations.
If indicators of impairment are present for a community, we perform an impairment evaluation of the community,
which includes an analysis to determine if the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amounts. If so, impairment charges are recorded to cost of sales if the fair value of such assets is less
than their carrying amounts. These estimates of cash flows are significantly impacted by community specific factors
including estimates of the amounts and timing of future revenues and estimates of the amount of land development,
materials and labor costs which, in turn, may be impacted by the following local market conditions:
•
•
•
•
•
•
•
supply and availability of new and existing homes;
location and desirability of our communities;
variety of product types offered in the area;
pricing and use of incentives by us and our competitors;
alternative uses for our land or communities such as the sale of land, finished lots or home sites to third
parties;
amount of land and lots we own or control in a particular market or sub-market; and
local economic and demographic trends.
52
For those assets deemed to be impaired, the impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Our determination of fair value is primarily based on
discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related
estimated cash flow streams. When an impairment charge for a community is determined, the charge is then allocated to
each lot in the community in the same manner as land and development costs are allocated to each lot. Impairment
charges are also recorded on finished homes in substantially completed communities when events or circumstances
indicate that the carrying values are greater than the fair values less estimated costs to sell these homes.
For the inventory impairment analyses performed during fiscal 2019, we assumed that for the majority of
communities, sales prices in future periods will be equal to or lower than current sales order prices in each community, or
in comparable communities, in order to generate an acceptable absorption rate. The remaining lives of the communities
evaluated were estimated to be in a range from one month to five years, and we utilized a range of discount rates for
communities from 12% to 18%.
We rarely purchase land for resale. However, when we own land or communities under development that do not fit
into our development and construction plans, and we determine that we will sell the asset, the project is accounted for as
land held for sale if certain criteria are met. We record land held for sale at the lesser of its carrying value or fair value
less estimated costs to sell. In performing the impairment evaluation for land held for sale, we consider several factors
including, but not limited to, recent offers received to purchase the property, prices for land in recent comparable sales
transactions and market analysis studies, which include the estimated price a willing buyer would pay for the land. If the
estimated fair value less costs to sell an asset is less than the current carrying value, the asset is written down to its
estimated fair value less costs to sell.
The key assumptions relating to inventory valuations are impacted by local market and economic conditions, and
are inherently uncertain. Although our quarterly assessments reflect management’s best estimates, due to uncertainties in
the estimation process, actual results could differ from such estimates.
Warranty Claims — 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. Since we subcontract our
construction work to subcontractors who typically provide us with an indemnity and a certificate of insurance prior to
receiving payments for their work, claims relating to workmanship and materials are generally the primary responsibility
of the subcontractors. Warranty liabilities have been established by charging cost of sales for each home delivered. The
amounts charged are based on management’s estimate of expected warranty-related costs under all unexpired warranty
obligation periods. Our warranty liability is based upon historical warranty cost experience in each market in which we
operate and is adjusted to reflect qualitative risks associated with the types of homes we build and the geographic areas
in which we build them. Actual future warranty costs could differ from our currently estimated amounts. A 10% change
in the historical warranty rates used to estimate our warranty accrual would not result in a material change in our accrual.
Legal Claims and Insurance — We are named as a defendant in various claims, complaints and other legal actions
in the ordinary course of business. At any point in time, we are managing several hundred individual claims related to
construction defect matters, personal injury claims, employment matters, land development issues, contract disputes and
other matters. We have established reserves for these contingencies based on the estimated costs of pending claims and
the estimated costs of anticipated future claims related to previously closed homes. Approximately 99% of these reserves
related to construction defect matters at both September 30, 2019 and 2018.
Our reserves for construction defect claims include the estimated costs of both known claims and anticipated future
claims. At September 30, 2019 and 2018, we had reserves for approximately 180 and 155 pending construction defect
claims, respectively, and no individual existing claim was material to our financial statements. During fiscal 2019, we
established reserves for approximately 110 new construction defect claims and resolved 85 construction defect claims for
a total cost of $17.9 million. We have closed a significant number of homes during recent years, and we may be subject
to future construction defect claims on these homes. Although regulations vary from state to state, construction defect
issues can generally be reported for up to ten years after the home has closed in many states in which we operate.
Historical data and trends regarding the frequency of claims incurred and the costs to resolve claims relative to the types
of products and markets where we operate are used to estimate the construction defect liabilities for both existing and
53
anticipated future claims. These estimates are subject to ongoing revision as the circumstances of individual pending
claims and historical data and trends change. Adjustments to estimated reserves are recorded in the accounting period in
which the change in estimate occurs.
Historical trends in construction defect claims have been inconsistent, and we believe they may continue to
fluctuate. We also believe that fluctuations in housing market conditions can affect the frequency and cost of construction
defect claims. If the ultimate resolution of construction defect claims resulting from our home closings in prior years
varies from current expectations, it could significantly change our estimates regarding the frequency and timing of
claims incurred and the costs to resolve existing and anticipated future claims, which would impact the construction
defect reserves in the future. If the frequency of claims incurred or costs of existing and future legal claims significantly
exceed our current estimates, they will have a significant negative impact on our future earnings and liquidity.
We estimate and record receivables under the applicable insurance policies related to our estimated contingencies
for known claims and anticipated future construction defect claims on previously closed homes and other legal claims
and lawsuits incurred in the ordinary course of business when recovery is probable. Additionally, we may have the ability
to recover a portion of our losses from our subcontractors and their insurance carriers when we have been named as an
additional insured on their insurance policies.
The estimation of losses related to these reserves and the related estimates of recoveries from insurance policies are
subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our
markets and the types of products built, claim frequency, claim settlement costs and patterns, insurance industry practices
and legal interpretations, among others. Due to the high degree of judgment required in establishing reserves for these
contingencies, actual future costs and recoveries from insurance could differ significantly from current estimated
amounts. A 10% increase in the claim frequency and the average cost per claim used to estimate the reserves would
result in an increase of approximately $73.7 million in our reserves and a $35.3 million increase in our receivable,
resulting in additional expense of $38.4 million. A 10% decrease in the claim frequency and the average cost per claim
would result in a decrease of approximately $66.3 million in our reserves and a $27.9 million decrease in our receivable,
resulting in a reduction in expense of $38.4 million.
Pending Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-02, “Leases,” which requires that lease assets and liabilities be recognized on the balance sheet and that key
information about leasing arrangements be disclosed. The guidance is effective for us beginning October 1, 2019 and
will not have a material impact on our consolidated financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which replaces the current
incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information in determining credit loss estimates. The guidance is
effective for us beginning October 1, 2020 and is not expected to have a material impact on our consolidated financial
position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other,” which simplifies the
measurement of goodwill impairment by removing the second step of the goodwill impairment test and requires the
determination of the fair value of individual assets and liabilities of a reporting unit. Under the new guidance, goodwill
impairment is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value with the loss
recognized limited to the total amount of goodwill allocated to the reporting unit. The guidance is effective for us
beginning October 1, 2020 and is not expected to have a material impact on our consolidated financial position, results of
operations or cash flows.
54
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk on our long-term debt. We monitor our exposure to changes in interest rates and
utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the fair value of the
debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally
do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. Except in very
limited circumstances, we do not have an obligation to prepay fixed-rate debt prior to maturity and, as a result, interest
rate risk and changes in fair value would not have a significant impact on our cash flows related to our fixed-rate debt
until such time as we are required to refinance, repurchase or repay such debt.
We are exposed to interest rate risk associated with our mortgage loan origination services. We manage interest rate
risk through the use of forward sales of mortgage-backed securities (MBS), which are referred to as “hedging
instruments” in the following discussion. We do not enter into or hold derivatives for trading or speculative purposes.
Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who
meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than six months. Some IRLCs
are committed immediately to a specific purchaser through the use of best-efforts whole loan delivery commitments,
while other IRLCs are funded prior to being committed to third-party purchasers. The hedging instruments related to
IRLCs are classified and accounted for as derivative instruments in an economic hedge, with gains and losses recognized
in revenues in the consolidated statements of operations. Hedging instruments related to funded, uncommitted loans are
accounted for at fair value, with changes recognized in revenues in the consolidated statements of operations, along with
changes in the fair value of the funded, uncommitted loans. The fair value change related to the hedging instruments
generally offsets the fair value change in the uncommitted loans. The net fair value change, which for the years ended
September 30, 2019 and 2018 was not significant, is recognized in current earnings. At September 30, 2019, hedging
instruments used to mitigate interest rate risk related to uncommitted mortgage loans held for sale and uncommitted
IRLCs totaled a notional amount of $1.3 billion. Uncommitted IRLCs totaled a notional amount of approximately $702.7
million and uncommitted mortgage loans held for sale totaled a notional amount of approximately $663.8 million at
September 30, 2019.
From time to time, we enter into forward sales of MBS as part of a program to offer below market interest rate
financing to our homebuyers in certain markets. At September 30, 2019, we had MBS totaling $111.4 million that did not
yet have IRLCs or closed loans created or assigned and recorded a liability of $0.5 million for the fair value of such
MBS position.
The following table sets forth principal cash flows by scheduled maturity, effective weighted average interest rates
and estimated fair value of our debt obligations as of September 30, 2019. Because the mortgage repurchase facility is
effectively secured by certain mortgage loans held for sale that are typically sold within 60 days, its outstanding balance
is included in the most current period presented. The interest rate for our variable rate debt represents the weighted
average interest rate in effect at September 30, 2019.
2020
Debt:
Fiscal Year Ending September 30,
2022
2021
2023
2024
Thereafter
Total
Fair Value at
September 30,
2019
($ in millions)
Fixed rate .....................
$ 716.4
$ 403.3
$ 350.4
$ 700.4
$ 351.5
$
— $2,522.0
$
2,636.9
Average interest rate.....
3.8%
2.8%
4.5%
5.5%
8.6%
—%
4.9%
Variable rate .................
$ 888.9
$ — $ — $ — $ — $
— $ 888.9
$
888.9
Average interest rate.....
3.7%
—%
—%
—%
—%
—%
3.7%
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of D.R. Horton, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of D.R. Horton, Inc. and subsidiaries (the Company)
as of September 30, 2019, and the related consolidated statements of operations, total equity, and cash flows for the
year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at September 30, 2019, and the results of its operations and its cash flows for the year then ended, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2019, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) and our report dated November 25, 2019 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which
it relates.
56
Description of
the Matter
Estimation of reserves for construction defect matters
At September 30, 2019, the Company’s reserve for legal claims related to construction defect
matters was $432.8 million. As explained in Note K to the consolidated financial statements,
the Company has established reserves for construction defect matters based on the estimated
costs of pending legal claims and the estimated costs of anticipated future legal claims related
to previously closed homes, and this liability is included within the accrued expenses and other
liabilities account in the consolidated balance sheet. This reserve estimate is subject to a high
degree of variability and ongoing revision as the circumstances of individual pending claims
and historical data and trends change. Management applies judgment in determining the key
assumptions used in calculating the reserve for construction defect matters.
Auditing the reserve for construction defect matters is complex and especially challenging due
to the judgmental nature of the key assumptions related to projections of the frequency of
future claims and the costs to resolve claims in consideration of historical claims information.
These assumptions are developed by management, are subjective in nature and have a
significant effect on the determined amount of the reserve for construction defect matters.
Further, the estimated reserve balance is sensitive to changes in these key assumptions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s process for estimating the reserve for construction defect matters.
We tested the Company’s controls that address the risk of material misstatement related to the
measurement and valuation of the reserve for construction defect matters, including the key
assumptions related to the projections of the frequency and costs of future claims, and the
completeness and accuracy of data used in the model developed by management.
To test the reserve for construction defect matters, our audit procedures included, among others,
evaluating the methodology used, the key assumptions and the underlying data used by the
Company in developing the reserve estimate. As management utilizes historical trends of
frequency of claims incurred and the average cost to resolve claims relative to the types of
products and markets where the Company operates in measuring the reserve estimate, we
evaluated management’s methodology for determining the frequency and cost of future claims
assumptions by comparing these key assumptions to trends observed in historical Company
claims data and other available information. In addition, we involved an actuarial specialist to
assist with our procedures. Our specialist developed a range of values for the reserve estimate
based on independently selected assumptions, which we compared to management’s recorded
amount to evaluate management’s estimate. We also performed sensitivity analyses to
determine the effect of changes in assumptions, where appropriate. Finally, we reconciled
historical data included in the model and performed recalculations to evaluate the completeness
and accuracy of the underlying data used by management to determine the estimate.
We have served as the Company’s auditor since 2018.
Fort Worth, Texas
November 25, 2019
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of D.R. Horton, Inc.
Opinion on Internal Control over Financial Reporting
We have audited D.R Horton, Inc. and subsidiaries’ internal control over financial reporting as of September 30,
2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, D.R. Horton,
Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2019, the related consolidated
statements of operations, total equity, and cash flows for the year then ended, and the related notes and our report
dated November 25, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Fort Worth, Texas
November 25, 2019
58
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of D.R. Horton, Inc.
Opinion on the Financial Statements
We have audited the consolidated balance sheet of D.R. Horton, Inc. and its subsidiaries (the “Company”) as of
September 30, 2018, and the related consolidated statements of operations, total equity, and cash flows for each of
the two years in the period ended September 30, 2018, including the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 30, 2018, and the results of its operations
and its cash flows for each of the two years in the period ended September 30, 2018 in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Fort Worth, Texas
November 16, 2018
We served as the Company’s auditor from 2008 to 2018.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and cash equivalents............................................................................................................. $
Restricted cash ..............................................................................................................................
Total cash, cash equivalents and restricted cash.......................................................................
Inventories:
Construction in progress and finished homes ..........................................................................
Residential land and lots — developed and under development .............................................
Land held for development ......................................................................................................
Land held for sale .....................................................................................................................
Total inventory ..................................................................................................................
Investment in unconsolidated entities ......................................................................................
Mortgage loans held for sale ....................................................................................................
Deferred income taxes, net of valuation allowance of $18.7 million
and $17.7 million at September 30, 2019 and 2018, respectively ...........................................
Property and equipment, net .........................................................................................................
Other assets ...................................................................................................................................
Goodwill........................................................................................................................................
September 30,
2019
2018
(In millions)
1,494.3
$
1,473.1
19.7
1,514.0
5,245.0
5,939.4
77.8
19.8
32.9
1,506.0
5,086.3
5,172.4
96.1
40.2
11,282.0
10,395.0
6.5
1,072.0
163.1
462.2
943.3
163.5
11.0
796.4
194.0
401.1
701.9
109.2
Total assets ........................................................................................................................ $
15,606.6
$
14,114.6
LIABILITIES
Accounts payable .......................................................................................................................... $
Accrued expenses and other liabilities..........................................................................................
Notes payable ................................................................................................................................
Total liabilities..........................................................................................................................
634.0
$
1,278.1
3,399.4
5,311.5
624.7
1,127.5
3,203.5
4,955.7
Commitments and contingencies (Note K)
EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued.........................
Common stock, $.01 par value, 1,000,000,000 shares authorized,
392,172,821 shares issued and 368,431,454 shares outstanding at September 30, 2019 and
388,120,243 shares issued and 376,261,635 shares outstanding at September 30, 2018 ........
Additional paid-in capital..............................................................................................................
Retained earnings ..........................................................................................................................
Treasury stock, 23,741,367 shares and 11,858,608 shares
at September 30, 2019 and 2018, respectively, at cost ............................................................
Stockholders’ equity.................................................................................................................
Noncontrolling interests ................................................................................................................
Total equity...............................................................................................................................
—
3.9
3,179.1
7,640.1
(802.2)
10,020.9
274.2
10,295.1
—
3.9
3,085.0
6,217.9
(322.4)
8,984.4
174.5
9,158.9
Total liabilities and equity................................................................................................. $
15,606.6
$
14,114.6
See accompanying notes to consolidated financial statements.
60
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
2019
Year Ended September 30,
2018
(In millions, except per share data)
2017
Revenues..................................................................................................... $
17,592.9
$
16,068.0
$
14,091.0
Cost of sales................................................................................................
13,720.9
Selling, general and administrative expense...............................................
1,832.5
12,398.1
1,676.8
11,042.8
1,471.6
Equity in earnings of unconsolidated entities.............................................
Gain on sale of assets..................................................................................
Other (income) expense..............................................................................
Income before income taxes .......................................................................
Income tax expense .............................................................................
Net income..................................................................................................
Net income attributable to noncontrolling interests....................................
(0.5)
(53.9)
(31.4)
2,125.3
506.7
1,618.6
0.1
(2.8)
(18.8)
(45.3)
2,060.0
597.7
1,462.3
2.0
—
—
(25.5)
1,602.1
563.7
1,038.4
—
Net income attributable to D.R. Horton, Inc. ............................................. $
1,618.5
$
1,460.3
$
1,038.4
Basic net income per common share attributable to D.R. Horton, Inc....... $
4.34
$
3.88
$
Weighted average number of common shares ............................................
372.6
376.6
Diluted net income per common share attributable to D.R. Horton, Inc.... $
4.29
$
3.81
$
Adjusted weighted average number of common shares .............................
377.4
383.4
2.77
374.3
2.74
378.9
See accompanying notes to consolidated financial statements.
61
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TOTAL EQUITY
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Non-
controlling
Interests
Total
Equity
(In millions, except common stock share data)
Balances at September 30, 2016
(372,923,187 shares) ...................................... $
Net income ......................................................
Exercise of stock options
(2,770,569 shares) .......................................
Tax benefit from employee stock awards........
Stock issued under employee benefit plans
(1,142,323 shares) .......................................
Cash paid for shares withheld for taxes...........
Stock-based compensation expense ................
Cash dividends declared ($0.40 per share)......
Repurchases of common stock
(1,850,000 shares) .......................................
Balances at September 30, 2017
(374,986,079 shares) ...................................... $
Noncontrolling interest acquired .....................
Net income ......................................................
Exercise of stock options
(2,547,139 shares) .......................................
Stock issued under employee benefit plans
(1,536,954 shares) .......................................
Cash paid for shares withheld for taxes...........
Stock-based compensation expense ................
Cash dividends declared ($0.50 per share)......
Repurchases of common stock
(2,808,537 shares) .......................................
Distributions to noncontrolling interests.........
Balances at September 30, 2018
(376,261,635 shares) ...................................... $
Cumulative effect of adoption of ASC 606
(see Note A) .................................................
Net income ......................................................
Exercise of stock options
(2,634,802 shares) .......................................
Stock issued under employee benefit plans
(1,417,776 shares) .......................................
Cash paid for shares withheld for taxes...........
Stock-based compensation expense ................
Cash dividends declared ($0.60 per share)......
Repurchases of common stock
(11,882,759 shares) .....................................
Distributions to noncontrolling interests.........
Change of ownership interest in Forestar .......
3.8
—
—
—
—
—
—
—
—
$
2,865.8
$
4,057.2
$
(134.3) $
—
1,038.4
—
—
—
—
—
—
—
—
—
—
—
—
(149.6)
43.8
13.7
14.8
(5.1)
59.2
—
—
—
(60.6)
0.5
—
$
6,793.0
1,038.4
—
—
—
—
—
—
—
43.8
13.7
14.8
(5.1)
59.2
(149.6)
(60.6)
3.8
$
2,992.2
$
4,946.0
$
(194.9) $
0.5
$
7,747.6
—
—
0.1
—
—
—
—
—
—
—
—
43.3
4.0
(10.3)
55.8
—
—
—
—
1,460.3
—
—
—
—
(188.4)
—
—
—
—
—
—
—
—
—
(127.5)
—
175.2
2.0
175.2
1,462.3
—
—
—
—
—
—
(3.2)
43.4
4.0
(10.3)
55.8
(188.4)
(127.5)
(3.2)
3.9
$
3,085.0
$
6,217.9
$
(322.4) $
174.5
$
9,158.9
—
—
—
—
—
—
—
—
—
—
—
—
38.1
4.6
(19.7)
73.2
—
—
—
(2.1)
27.1
1,618.5
—
—
—
—
(223.4)
—
—
—
—
—
—
—
—
—
—
(479.8)
—
—
—
0.1
—
—
—
—
—
—
(3.9)
103.5
27.1
1,618.6
38.1
4.6
(19.7)
73.2
(223.4)
(479.8)
(3.9)
101.4
Balances at September 30, 2019
(368,431,454 shares) ...................................... $
3.9
$
3,179.1
$
7,640.1
$
(802.2) $
274.2
$ 10,295.1
See accompanying notes to consolidated financial statements.
62
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2019
Year Ended September 30,
2018
(In millions)
2017
OPERATING ACTIVITIES
Net income ................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
1,618.6
$
1,462.3
$
1,038.4
Depreciation and amortization .................................................................................
Amortization of discounts and fees .........................................................................
Stock-based compensation expense .........................................................................
Equity in earnings of unconsolidated entities ..........................................................
Distributions of earnings of unconsolidated entities ................................................
Excess income tax benefit from employee stock awards .........................................
Deferred income taxes .............................................................................................
Inventory and land option charges ...........................................................................
Gain on sale of assets ..............................................................................................
Changes in operating assets and liabilities:
Decrease (increase) in construction in progress and finished homes .......................
Increase in residential land and lots —
developed, under development, held for development and held for sale .............
Increase in other assets ............................................................................................
Net (increase) decrease in mortgage loans held for sale ..........................................
Increase in accounts payable, accrued expenses and other liabilities ......................
Net cash provided by operating activities .....................................................................
INVESTING ACTIVITIES
Expenditures for property and equipment ...............................................................
Proceeds from sale of assets ....................................................................................
Expenditures related to rental properties .................................................................
Return of investment in unconsolidated entities ......................................................
Net principal (increase) decrease of other mortgage loans
and real estate owned ...........................................................................................
Proceeds from (purchases of) debt securities collateralized by
residential real estate ............................................................................................
Payments related to business acquisitions, net of cash acquired .............................
Net cash (used in) provided by investing activities ......................................................
FINANCING ACTIVITIES
72.0
10.9
73.2
(0.5)
0.5
—
20.1
54.0
(53.9)
84.6
(676.4)
(161.6)
(275.6)
126.2
892.1
(127.2)
143.8
(96.9)
4.4
(2.3)
—
(315.8)
(394.0)
62.4
9.9
55.8
(2.8)
2.0
—
170.9
50.4
(18.8)
(482.8)
(573.8)
(110.6)
(208.8)
129.1
545.2
(68.1)
292.9
(70.2)
17.5
(1.2)
7.3
(159.2)
19.0
54.7
5.0
59.2
—
—
(14.3)
110.8
40.2
—
(584.4)
(362.3)
(63.7)
67.6
89.0
440.2
(102.7)
—
(54.6)
—
6.2
(8.8)
(4.1)
(164.0)
Proceeds from notes payable ...................................................................................
Repayment of notes payable ....................................................................................
Advances (payments) on mortgage repurchase facility, net ....................................
Proceeds from stock associated with certain employee benefit plans......................
Excess income tax benefit from employee stock awards .........................................
Cash paid for shares withheld for taxes ...................................................................
Cash dividends paid .................................................................................................
Repurchases of common stock ................................................................................
Distributions to noncontrolling interests, net ..........................................................
Net proceeds from issuance of Forestar common stock ..........................................
Net cash used in financing activities ............................................................................
Net increase (decrease) in cash, cash equivalents and restricted cash ..........................
Cash, cash equivalents and restricted cash at beginning of year...................................
Cash, cash equivalents and restricted cash at end of year ............................................. $
2,528.2
(2,686.1)
251.2
42.7
—
(19.7)
(223.4)
(479.8)
(3.9)
100.7
(490.1)
8.0
1,506.0
1,514.0
$
2,163.5
(2,181.7)
217.7
47.4
—
(10.3)
(188.4)
(127.5)
(3.2)
—
(82.5)
481.7
1,024.3
1,506.0
$
835.0
(1,192.3)
(53.0)
46.7
14.3
(5.1)
(149.6)
(60.6)
—
—
(564.6)
(288.4)
1,312.7
1,024.3
63
D.R. HORTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Year Ended September 30,
2018
2017
2019
Supplemental cash flow information:
Income taxes paid, net ........................................................................................ $
488.0
Supplemental disclosures of non-cash activities:
Notes payable issued for inventory .................................................................... $
Stock issued under employee incentive plans ..................................................... $
Accrued expenditures for property and equipment ............................................. $
Accrual for holdback payment related to acquisition ......................................... $
83.6
49.6
14.1
10.1
(In millions)
$
$
$
$
$
387.2
$
446.4
64.0
10.7
— $
$
$
— $
4.5
31.9
16.3
—
See accompanying notes to consolidated financial statements.
64
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. Generally
Accepted Accounting Principles (GAAP) and include the accounts of D.R. Horton, Inc. and all of its 100% owned,
majority-owned and controlled subsidiaries, which are collectively referred to as the Company, unless the context
otherwise requires. Noncontrolling interests represent the proportionate equity interests in consolidated entities that are
not 100% owned by the Company. The Company owns a 66% controlling interest in Forestar Group Inc. (Forestar) and
therefore is required to consolidate 100% of Forestar within its consolidated financial statements, and the 34% interest
the Company does not own is accounted for as noncontrolling interests. All intercompany accounts, transactions and
balances have been eliminated in consolidation.
Reclassifications
In connection with the adoption of Accounting Standards Update (ASU) 2016-18 in fiscal 2019, restricted cash is
now included with cash and cash equivalents when reconciling beginning and ending amounts in the consolidated
statements of cash flows. Prior year amounts have been reclassified to conform to the current year presentation, resulting
in an increase in cash provided by investing activities of $16.4 million for fiscal 2018 and a decrease in cash used in
investing activities of $7.0 million for fiscal 2017.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those estimates.
Adoption of New Accounting Standard
On October 1, 2018, the Company adopted Accounting Standards Codification 606, "Revenue from Contracts with
Customers" (ASC 606), which is a comprehensive new revenue recognition model that requires revenue to be recognized
in a manner to depict the transfer of goods or services and satisfaction of performance obligations to a customer in an
amount that reflects the consideration expected to be received in exchange for those goods or services. The Company
applied the modified retrospective method to contracts that were not completed as of October 1, 2018. Results for fiscal
2019 are presented under ASC 606, while prior year amounts were not adjusted and will continue to be reported under
the previous accounting standards. The Company recorded an increase to retained earnings of $27.1 million, net of tax,
as of October 1, 2018, due to the cumulative effect of adopting ASC 606, which was primarily related to the recognition
of contract assets totaling $32.4 million for insurance brokerage commission renewals. Under ASC 606, the Company
recognizes revenue and a contract asset for estimated future renewals of these policies upon issuance of the initial policy,
the date at which the performance obligation is satisfied. There was not a material impact to fiscal 2019 revenues as a
result of applying ASC 606, and there have not been significant changes to the Company’s business processes, systems,
or internal controls as a result of implementing the standard.
Revenue Recognition
Homebuilding revenue and related profit are generally recognized at the time of the closing of a sale, when title to
and possession of the property are transferred to the buyer. The Company’s performance obligation, to deliver the
agreed-upon home, is generally satisfied in less than one year from the original contract date. Proceeds from home
closings held for the Company’s benefit at title companies are included in homebuilding cash and cash equivalents in the
consolidated balance sheets.
65
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
When the Company executes sales contracts with its homebuyers, or when it requires advance payment from
homebuyers for custom changes, upgrades or options related to their homes, the cash deposits received are recorded as
liabilities until the homes are closed or the contracts are cancelled. The Company either retains or refunds to the
homebuyer deposits on cancelled sales contracts, depending upon the applicable provisions of the contract or other
circumstances.
The Company rarely purchases land for resale, but periodically may elect to sell parcels of land that no longer fit
into its strategic operating plans. Revenue from land sales is typically recognized on the closing date, which is generally
when performance obligations are satisfied.
Financial services revenues associated with the Company’s title operations are recognized as closing services are
rendered and title insurance policies are issued, both of which generally occur simultaneously as each home is closed.
The Company transfers substantially all underwriting risk associated with title insurance policies to third-party insurers.
Revenues associated with the Company’s mortgage operations primarily include net gains on the sale of mortgage loans
and servicing rights. The Company typically elects the fair value option for its mortgage loan originations whereby
mortgage loans held for sale are recorded at fair value based on either sale commitments or current market quotes and
loan values are adjusted through revenues for subsequent changes in fair value until the loans are sold. Expected gains
and losses from the sale of servicing rights are included in the measurement of all written loan commitments that are
accounted for at fair value through revenues at the time of commitment. The Company sells substantially all of the
mortgages it originates and the related servicing rights to third-party purchasers. Interest income is earned from the date
a mortgage loan is originated until the loan is sold.
The Company collects insurance commissions on homeowner policies placed with third party carriers through its
100% owned insurance agency. The Company recognizes revenue and a contract asset for estimated future renewals of
these policies upon issuance of the initial policy, the date at which the performance obligation is satisfied.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less when
purchased to be cash equivalents. Proceeds from home closings held for the Company’s benefit at title companies, which
totaled $244.8 million at September 30, 2019, are included in homebuilding cash and cash equivalents in the
consolidated balance sheets.
Cash balances of the Company’s captive insurance subsidiary, which are expected to be used to fund the
subsidiary’s operations and pay future anticipated legal claims, were $48.6 million and $44.2 million at September 30,
2019 and 2018, respectively, and are included in cash and cash equivalents in the consolidated balance sheets.
Restricted Cash
The Company has cash that is restricted as to its use. Restricted cash related to homebuilding and land
development operations includes customer deposits that are temporarily restricted in accordance with regulatory
requirements. Restricted cash related to financial services is mortgagor related funds held by the Company for taxes and
insurance on an interim basis until the loans are sold.
Inventories and Cost of Sales
Inventory includes the costs of direct land acquisition, land development and home construction, capitalized
interest, real estate taxes and direct overhead costs incurred during development and home construction. Costs incurred
after development projects or homes are substantially complete, such as utilities, maintenance, and cleaning, are charged
to selling, general and administrative (SG&A) expense as incurred. All indirect overhead costs, such as compensation of
sales personnel, division and region management, and the costs of advertising and builder’s risk insurance are charged to
SG&A expense as incurred.
66
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Land and development costs are typically allocated to individual residential lots on a pro-rata basis, and the costs
of residential lots are transferred to construction in progress when home construction begins. Home construction costs
are specifically identified and recorded to individual homes. Cost of sales for homes closed includes the specific
construction costs of each home and all applicable land acquisition, land development and related costs (both incurred
and estimated to be incurred) allocated to each residential lot based upon the total number of homes expected to be
closed in each community. Cost of sales for lots sold includes all applicable land acquisition, land development and
related costs (both incurred and estimated to be incurred) allocated to each residential lot in the community. Any changes
to the estimated total development costs subsequent to the initial home or lot closings in a community are generally
allocated on a pro-rata basis to the remaining homes or lots in the community associated with the relevant development
activity.
When a home is closed, the Company generally has not paid all incurred costs necessary to complete the home. A
liability and a corresponding charge to cost of sales are recorded for the amount estimated to ultimately be paid related to
completed homes that have been closed. Home construction budgets are compared to actual recorded costs to determine
the additional costs remaining to be paid on each closed home.
The Company rarely purchases land for resale. However, when the Company owns land or communities under
development that do not fit into its development and construction plans, and the Company determines that it will sell the
asset, the project is accounted for as land held for sale if certain criteria are met. The Company records land held for sale
at the lesser of its carrying value or fair value less estimated costs to sell.
Each quarter, the Company reviews its communities and land inventories for indicators of potential impairment. If
indicators of impairment are present for a community, the Company performs an impairment evaluation of the
community, which includes an analysis to determine if the undiscounted cash flows estimated to be generated by those
assets are less than their carrying amounts. If so, impairment charges are recorded to cost of sales if the fair value of such
assets is less than their carrying amounts. Impairment charges are also recorded on finished homes in substantially
completed communities when events or circumstances indicate that the carrying values are greater than the fair values
less estimated costs to sell these homes. The key assumptions relating to inventory valuations are impacted by local
market and economic conditions and are inherently uncertain. Due to uncertainties in the estimation process, actual
results could differ from such estimates. See Note C.
Capitalized Interest
The Company capitalizes interest costs incurred to inventory during active development and construction (active
inventory). Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. During
periods in which the Company’s active inventory is lower than its debt level, a portion of the interest incurred is reflected
as interest expense in the period incurred. During fiscal 2019, 2018 and 2017, the Company’s active inventory exceeded
its debt level, and all interest incurred was capitalized to inventory. See Note E.
Land Purchase Contract Deposits and Pre-Acquisition Costs
The Company enters into land and lot purchase contracts to acquire land or lots for the construction of homes.
Under these contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to
purchase land or lots at a future point in time with predetermined terms. Under the terms of many of the purchase
contracts, the deposits are not refundable in the event the Company elects to terminate the contract. Land purchase
contract deposits and capitalized pre-acquisition costs are expensed to inventory and land option charges when the
Company believes it is probable that it will not acquire the property under contract and will not be able to recover these
costs through other means. See Notes C and K.
67
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Variable Interests
Land purchase contracts can result in the creation of a variable interest in the entity holding the land parcel under
contract. At September 30, 2019, there was one variable interest entity reported in the Company’s consolidated balance
sheet as a result of the related party transaction described in Note N. There were no variable interest entities reported in
the consolidated balance sheet at September 30, 2018 because, with regard to each entity, the Company determined it did
not control the activities that most significantly impact the variable interest entity’s economic performance, and it did not
have an obligation to absorb losses of or the right to receive benefits from the entity. The maximum exposure to losses
related to the Company’s unconsolidated variable interest entities is limited to the amounts of the Company’s related
deposits. At September 30, 2019 and 2018, the deposits related to these contracts totaled $396.9 million and $326.0
million, respectively, and are included in other assets in the consolidated balance sheets.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Repairs and maintenance costs are
expensed as incurred. Property under construction is not depreciated until the property is placed in service. Depreciation
generally is recorded using the straight-line method over the estimated useful life of the asset. The depreciable life of
model home furniture is 2 years, depreciable lives of office furniture and equipment typically range from 2 to 5 years,
and depreciable lives of buildings and improvements typically range from 5 to 30 years.
DHI Communities develops, constructs and owns multi-family residential properties that produce rental income.
DHI Communities has four projects under active construction and two projects that are substantially complete, one of
which was under contract to sell at September 30, 2019. The property balances related to these operations are presented
in the table below.
The Company’s property and equipment balances and the related accumulated depreciation at September 30, 2019
and 2018 were as follows:
Buildings and improvements (1) (2) .................................................................................... $
Multi-family rental properties under construction ...............................................................
Model home furniture...........................................................................................................
Office furniture and equipment ............................................................................................
Land (1) (2) ..........................................................................................................................
Total property and equipment ...................................................................................... $
Accumulated depreciation....................................................................................................
Property and equipment, net ........................................................................................ $
_____________
September 30,
2019
2018
(In millions)
329.4
$
65.2
128.3
128.6
71.6
723.1
(260.9)
462.2
$
$
292.3
54.1
127.8
107.8
63.8
645.8
(244.7)
401.1
(1) At September 30, 2019, buildings and improvements included $50.7 million related to completed multi-family rental
properties and $56.9 million related to the Company’s oil and gas related assets. Additionally, land included $38.0
million related to the Company’s multi-family rental operations.
(2) At September 30, 2018, buildings and improvements included $87.3 million related to completed multi-family rental
properties and land included $36.7 million related to the Company’s multi-family rental operations.
Depreciation expense was $66.1 million, $58.2 million and $49.4 million in fiscal 2019, 2018 and 2017,
respectively.
68
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Business Acquisitions
The Company accounts for acquisitions of businesses by allocating the purchase price of the business to the various
assets acquired and liabilities assumed at their respective fair values. Any excess of the purchase price over the estimated
fair values of the identifiable net assets acquired is recorded as goodwill. Significant judgment is often required in
estimating the fair value of assets acquired, particularly intangible assets. These estimates and assumptions are based on
historical experience, information obtained from the management of the acquired companies and the Company’s
estimates of significant assumptions that a market participant would use when determining fair value. While the
Company believes the estimates and assumptions are reasonable, they are inherently uncertain. Unanticipated market or
macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and
assumptions.
During the first quarter of fiscal 2019, the Company acquired the homebuilding operations of Westport Homes,
Classic Builders and Terramor Homes for $325.9 million. Westport Homes operates in Indianapolis and Fort Wayne,
Indiana, and Columbus, Ohio; Classic Builders operates in Des Moines, Iowa; and Terramor Homes operates in Raleigh,
North Carolina.
The Company’s allocation of the aggregate purchase price of these transactions was based on the estimated fair
value of the assets and liabilities acquired as follows (in millions):
Inventories...................................................................................................................................................... $
Other assets ....................................................................................................................................................
Goodwill ........................................................................................................................................................
Intangible assets .............................................................................................................................................
Other liabilities...............................................................................................................................................
Net assets acquired.................................................................................................................................... $
265.5
23.3
54.3
8.6
(25.8)
325.9
As a result of these transactions, the Company recorded goodwill of $54.3 million, of which $49.7 million was
allocated to the Midwest region and $4.6 million was allocated to the East region. The goodwill is tax deductible and
relates to expected synergies from expanding the Company’s market presence in its Midwest and East regions, the
experienced and knowledgeable workforce of these entities and their capital efficient operating processes. The intangible
assets will be amortized on a straight-line basis to SG&A expense over their expected lives, which range from one to
three years.
Goodwill
The Company records goodwill associated with its acquisitions of businesses when the purchase price of the
business exceeds the fair value of the net tangible and identifiable intangible assets acquired. Goodwill balances are
evaluated for potential impairment on at least an annual basis by performing a qualitative assessment to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value
of an operating segment with goodwill is less than its carrying amount. If the qualitative assessment indicates that
additional impairment testing is required, then a quantitative assessment is performed to determine the operating
segment’s fair value. The estimated fair value is determined by discounting the future cash flows of the operating
segment to present value. If the carrying value of the operating segment exceeds its fair value, the Company determines
if an impairment exists based on the implied fair value of the operating segment’s goodwill. As a result of the qualitative
assessments performed in fiscal 2019, 2018 and 2017, no impairment charges were indicated or recorded.
69
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company’s goodwill balances by reporting segment were as follows:
September 30,
2019
2018
East ....................................................................................................................................... $
Midwest................................................................................................................................
Southeast ..............................................................................................................................
South Central........................................................................................................................
Southwest .............................................................................................................................
West......................................................................................................................................
Forestar.................................................................................................................................
(In millions)
26.4
$
49.7
40.1
15.9
—
2.2
29.2
Total goodwill.................................................................................................................. $
163.5
$
21.8
—
40.1
15.9
—
2.2
29.2
109.2
Warranty Claims
The Company typically provides its homebuyers with a ten-year limited warranty for major defects in structural
elements such as framing components and foundation systems, a two-year limited warranty on major mechanical systems
and a one-year limited warranty on other construction components. Since the Company subcontracts its construction
work to subcontractors who typically provide it with an indemnity and a certificate of insurance prior to receiving
payments for their work, claims relating to workmanship and materials are generally the primary responsibility of the
subcontractors. Warranty liabilities have been established by charging cost of sales for each home delivered. The
amounts charged are based on management’s estimate of expected warranty-related costs under all unexpired warranty
obligation periods. The Company’s warranty liability is based upon historical warranty cost experience in each market in
which it operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic
areas in which they are built. See Note K.
Legal Claims and Insurance
The Company records expenses and liabilities for legal claims related to construction defect matters, personal
injury claims, employment matters, land development issues, contract disputes and other matters. The amounts recorded
for these contingencies are based on the estimated costs of pending claims and the estimated costs of anticipated future
claims related to previously closed homes. The Company estimates and records receivables under its applicable
insurance policies for these legal claims when recovery is probable. Additionally, the Company may have the ability to
recover a portion of its losses from its subcontractors and their insurance carriers when the Company has been named as
an additional insured on their insurance policies. See Note K.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was approximately $47.0 million,
$44.1 million and $45.4 million in fiscal 2019, 2018 and 2017, respectively.
70
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Income Taxes
The Company’s income tax expense is calculated using the asset and liability method, under which deferred tax
assets and liabilities are recognized based on the future tax consequences attributable to temporary differences between
the financial statement amounts of assets and liabilities and their respective tax bases and attributable to net operating
losses and tax credit carryforwards. When assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The realization of
deferred tax assets is dependent upon the generation of sufficient taxable income in future periods and in the jurisdictions
in which those temporary differences become deductible. The Company records a valuation allowance when it
determines it is more likely than not that a portion of the deferred tax assets will not be realized. The accounting for
deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these
future results could have a material impact on the Company’s consolidated results of operations or financial position.
Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the
Company’s deferred tax assets and liabilities. See Note G.
Interest and penalties related to unrecognized tax benefits are recognized in the financial statements as a
component of income tax expense. Significant judgment is required to evaluate uncertain tax positions. The Company
evaluates its uncertain tax positions on a quarterly basis. The evaluations are based upon a number of factors, including
changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits and
effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in
increases or decreases in the Company’s income tax expense in the period in which the change is made. The Company’s
unrecognized tax benefits and related accrued interest at September 30, 2019 and 2018 were immaterial.
Earnings Per Share
Basic earnings per share is based on the weighted average number of shares of common stock outstanding during
each year. Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive
securities outstanding during each year. See Note H.
Stock-Based Compensation
The Company’s stockholders formally authorize shares of its common stock to be available for future grants of
stock-based compensation awards. From time to time, the Compensation Committee of the Company’s Board of
Directors authorizes the grant of stock-based compensation to its employees and directors from these available shares. At
September 30, 2019, the outstanding stock-based compensation awards include stock options and restricted stock units.
Grants of restricted stock units vest over a certain number of years as determined by the Compensation Committee of the
Board of Directors. Restricted stock units outstanding at September 30, 2019 have a remaining vesting period up to 4.2
years. Stock options are granted at exercise prices which equal the market value of the Company’s common stock at the
date of the grant. All stock options outstanding at September 30, 2019 were vested and expire 10 years after the dates on
which they were granted.
The compensation expense for stock-based awards is based on the fair value of the award and is recognized on a
straight-line basis over the remaining vesting period. The fair values of restricted stock units are based on the Company’s
stock price on the date of grant. The fair values of stock options granted are calculated on the date of grant using a Black-
Scholes option pricing model. Determining the fair value of stock options requires judgment in developing assumptions
and involves a number of estimates. These estimates include, but are not limited to, the expected stock price volatility
over the term of the awards, the expected dividend yield and expected stock option exercise behavior. In addition,
judgment is used in estimating the number of stock awards that are expected to be forfeited. See Note J.
71
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fair Value Measurements
The Financial Accounting Standards Board’s (FASB) authoritative guidance for fair value measurements
establishes a three-level hierarchy based upon the inputs to the valuation model of an asset or liability. When available,
the Company uses quoted market prices in active markets to determine fair value. The Company considers the principal
market and nonperformance risk associated with the Company’s counterparties when determining the fair value
measurements, if applicable. Fair value measurements are used for the Company’s mortgage loans held for sale, debt
securities collateralized by residential real estate, interest rate lock commitments and other derivative instruments on a
recurring basis and are used for inventories, other mortgage loans and real estate owned on a nonrecurring basis, when
events and circumstances indicate that the carrying value is not recoverable. See Note M.
Pending Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires that lease assets and liabilities be
recognized on the balance sheet and that key information about leasing arrangements be disclosed. The guidance is
effective for the Company beginning October 1, 2019 and will not have a material impact on its consolidated financial
position, results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which replaces the current
incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration
of a broader range of reasonable and supportable information in determining credit loss estimates. The guidance is
effective for the Company beginning October 1, 2020 and is not expected to have a material impact on its consolidated
financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other,” which simplifies the
measurement of goodwill impairment by removing the second step of the goodwill impairment test and requires the
determination of the fair value of individual assets and liabilities of a reporting unit. Under the new guidance, goodwill
impairment is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value with the loss
recognized limited to the total amount of goodwill allocated to the reporting unit. The guidance is effective for the
Company beginning October 1, 2020 and is not expected to have a material impact on its consolidated financial position,
results of operations or cash flows.
72
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE B – SEGMENT INFORMATION
The Company’s operating segments are its 52 homebuilding divisions, its majority-owned Forestar residential lot
development operations, its financial services operations and its other business activities. The Company’s reporting segments
are its homebuilding reporting segments, its Forestar land development segment and its financial services segment. The
homebuilding operating segments are aggregated into the following six reporting segments: East, Midwest, Southeast, South
Central, Southwest and West. These reporting segments have homebuilding operations located in the following states:
East:
Delaware, Georgia (Savannah only), Maryland, New Jersey, North Carolina, Pennsylvania,
South Carolina and Virginia
Midwest:
Colorado, Illinois, Indiana, Iowa, Minnesota and Ohio
Southeast:
Alabama, Florida, Georgia, Mississippi and Tennessee
South Central:
Louisiana, Oklahoma and Texas
Southwest:
Arizona and New Mexico
West:
California, Hawaii, Nevada, Oregon, Utah and Washington
Homebuilding is the Company’s core business, generating 97% of consolidated revenues in fiscal 2019 and 2018 and
98% of consolidated revenues in fiscal 2017. The Company’s homebuilding divisions are primarily engaged in the acquisition
and development of land and the construction and sale of residential homes, with operations in 90 markets in 29 states across
the United States. Most of the revenue generated by the Company’s homebuilding operations is from the sale of completed
homes and to a lesser extent from the sale of land and lots.
The Forestar segment is a residential lot development company with operations in 51 markets and 20 states. Forestar is
making significant investments in land acquisition and development to expand its business across a geographically diversified
national platform. The homebuilding divisions acquire finished lots from Forestar in accordance with the master supply
agreement between the two companies. Forestar’s segment results are presented on their historical cost basis, consistent with
the manner in which management evaluates segment performance.
The Company’s financial services segment provides mortgage financing and title agency services to homebuyers in many
of the Company’s homebuilding markets. The segment generates the substantial majority of its revenues from originating and
selling mortgages and collecting fees for title insurance agency and closing services. The Company sells substantially all of the
mortgages it originates and the related servicing rights to third-party purchasers.
In addition to its homebuilding, Forestar and financial services operations, the Company has subsidiaries that engage in
other business activities. These subsidiaries conduct insurance-related operations, construct and own income-producing rental
properties, own non-residential real estate including ranch land and improvements and own and operate oil and gas related
assets. The operating results of these subsidiaries are immaterial for separate reporting and therefore are grouped together and
presented as other. One of these subsidiaries, DHI Communities, constructs multi-family rental properties and has four projects
under active construction and two projects that are substantially complete, one of which was under contract to sell at
September 30, 2019. In January 2019, DHI Communities sold its first multi-family rental property for $73.4 million and
recorded a gain on the sale of $29.3 million. In June 2019, DHI Communities sold its second multi-family rental property for
$60.0 million and recorded a gain on the sale of $22.6 million. At September 30, 2019 and 2018, property and equipment in the
consolidated balance sheets included $153.9 million and $171.4 million, respectively, of assets owned by DHI Communities.
73
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The accounting policies of the reporting segments are described throughout Note A. Financial information relating to the
Company’s reporting segments is as follows:
Homebuilding
Forestar (1)
Financial
Services
Other (2)
Eliminations (3)
Other
Adjustments (4)
Consolidated
(In millions)
September 30, 2019
Assets
Cash and cash equivalents ...........
$
1,043.0
$
382.8
$
43.4
$
25.1
$
Restricted cash .............................
8.0
Inventories:
Construction in progress and
finished homes .....................
Residential land and lots —
developed and under
development .........................
Land held for development .....
Land held for sale ...................
Investment in unconsolidated
entities ......................................
Mortgage loans held for sale........
Deferred income taxes, net ..........
Property and equipment, net ........
Other assets ..................................
Goodwill ......................................
Liabilities
Accounts payable.........................
Accrued expenses and
other liabilities ...........................
Notes payable ..............................
—
—
5,249.0
4,956.1
1,011.8
60.7
19.8
17.1
—
10,285.6
1,028.9
—
—
146.4
235.4
863.2
134.3
7.3
—
17.4
2.4
16.9
—
11.6
0.1
—
—
—
—
—
—
1,072.0
—
3.2
68.3
—
—
—
—
—
—
—
—
—
221.2
71.5
—
— $
—
— $ 1,494.3
—
19.7
(4.0)
—
5,245.0
(31.4)
—
—
(35.4)
—
—
5.1
—
(88.5)
—
2.9
—
—
2.9
(0.8)
—
(5.8)
—
11.9
29.2
5,939.4
77.8
19.8
11,282.0
6.5
1,072.0
163.1
462.2
943.3
163.5
$ 12,715.9
$ 1,455.7
$ 1,198.5
$
317.9
$
(118.8) $
37.4
$ 15,606.6
$
598.6
$
16.8
$
7.0
$
11.6
$
— $
— $
634.0
1,152.5
2,047.6
169.5
460.5
53.0
888.9
9.3
—
(93.6)
—
(12.6)
2.4
1,278.1
3,399.4
$
3,798.7
$
646.8
$
948.9
$
20.9
$
(93.6) $
(10.2) $ 5,311.5
_____________
(1) Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment
performance. All purchase accounting adjustments are included in the Other Adjustments column.
(2) Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.
(3) Amounts represent the elimination of intercompany transactions.
(4) Amounts represent purchase accounting adjustments related to the Forestar acquisition.
74
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Homebuilding
Forestar (1)
Financial
Services
Other (1)
Eliminations (3)
Other
Adjustments (4)
Consolidated
(In millions)
September 30, 2018
Assets
Cash and cash equivalents.........
$ 1,111.8
$
318.8
$
33.7
$
Restricted cash ..........................
8.6
16.2
8.1
$
8.8
—
— $
—
— $ 1,473.1
—
32.9
Inventories:
Construction in progress and
finished homes .....................
Residential land and lots —
developed and under
development.......................
Land held for development ..
Land held for sale.................
Investment in unconsolidated
entities ......................................
Mortgage loans held for sale .....
Deferred income taxes, net........
Property and equipment, net .....
Other assets ...............................
Goodwill....................................
Liabilities
Accounts payable ......................
Accrued expenses and
other liabilities.........................
Notes payable ............................
5,084.4
—
4,689.3
61.2
40.2
9,875.1
—
—
176.5
207.1
673.7
80.0
463.1
34.9
—
498.0
11.7
—
26.9
1.8
19.7
—
—
—
—
—
—
—
796.4
—
3.0
43.6
—
—
—
—
—
—
—
—
—
189.2
0.9
—
1.9
(7.2)
—
—
(5.3)
—
—
1.1
—
(48.6)
—
—
5,086.3
27.2
5,172.4
—
—
96.1
40.2
27.2
10,395.0
(0.7)
—
(10.5)
—
12.6
29.2
11.0
796.4
194.0
401.1
701.9
109.2
$ 12,132.8
$
893.1
$
884.8
$
198.9
$
(52.8) $
57.8
$ 14,114.6
$
612.4
$
11.2
$
0.2
$
4.2
$
(3.3) $
— $
624.7
1,041.3
2,445.9
95.7
111.7
41.9
637.7
9.9
—
(46.1)
—
(15.2)
8.2
1,127.5
3,203.5
$ 4,099.6
$
218.6
$
679.8
$
14.1
$
(49.4) $
(7.0) $ 4,955.7
______________
(1) Amounts are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment
performance. All purchase accounting adjustments are included in the Other Adjustments column.
(2) Amounts represent the aggregate balances of certain subsidiaries that are immaterial for separate reporting.
(3) Amounts represent the elimination of intercompany transactions and the reclassification of Forestar interest expense to
inventory.
(4) Amounts represent purchase accounting adjustments related to the Forestar acquisition.
75
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended September 30, 2019
Homebuilding
Forestar (1)
Financial
Services
Other (2)
Eliminations (3)
Other
Adjustments (4)
Consolidated
(In millions)
Revenues:
Home sales ..................................
$ 16,925.0
$
— $
— $
— $
— $
— $ 16,925.0
Land/lot sales and other ...............
Financial services ........................
91.9
—
17,016.9
Cost of sales:
Home sales (5) .............................
13,507.1
Land/lot sales and other ...............
Inventory and land option
charges .....................................
75.1
53.2
13,635.4
428.3
—
428.3
—
361.9
0.8
362.7
—
441.7
441.7
—
—
—
—
32.6
—
32.6
—
—
—
—
Selling, general and
administrative expense ................
Equity in earnings of
unconsolidated entities ................
Gain on sale of assets ......................
Other (income) expense...................
1,482.3
28.9
293.0
27.8
—
(2.0)
(9.5)
(0.5)
(3.0)
(5.5)
—
—
(17.6)
—
(51.9)
1.2
(326.6)
—
(326.6)
(8.3)
(287.4)
—
(295.7)
—
—
—
—
—
—
226.2
441.7
— 17,592.9
— 13,498.8
18.5
—
18.5
0.5
—
3.0
—
168.1
54.0
13,720.9
1,832.5
(0.5)
(53.9)
(31.4)
Income before income taxes ............
$
1,910.7
$
45.7
$
166.3
$
55.5
$
(30.9) $
(22.0) $ 2,125.3
Summary Cash Flow Information:
Depreciation and amortization.....
Cash provided by (used in)
operating activities ...................
$
$
63.7
1,438.0
$
$
0.2
$
1.5
$
(391.3) $
(150.2) $
6.1
2.5
$
$
— $
0.5
$
72.0
(2.5) $
(4.4) $
892.1
_____________
(1) Results are presented on Forestar’s historical cost basis, consistent with the manner in which management evaluates segment
performance. All purchase accounting adjustments are included in the Other Adjustments column.
(2) Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.
(3) Amounts represent the elimination of intercompany transactions.
(4) Amounts represent purchase accounting adjustments related to the Forestar acquisition.
(5) Amount in the Eliminations column represents the profit on lots sold from Forestar to the homebuilding segment. Intercompany
profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is
recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.
76
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended September 30, 2018
Homebuilding
Forestar (1)
Financial
Services
Other (2)
Eliminations (3)
Other
Adjustments (4)
Consolidated
(In millions)
Revenues:
Home sales .................................. $ 15,502.0
$
— $
— $
— $
— $
— $ 15,502.0
Land/lot sales and other ...............
Financial services ........................
121.8
—
15,623.8
Cost of sales:
Home sales (5) .............................
12,195.5
Land/lot sales and other ...............
Inventory and land option
charges .....................................
Selling, general and
administrative expense ................
Equity in earnings of
unconsolidated entities ................
Gain on sale of assets ......................
Interest expense ...............................
Other (income) expense...................
99.1
48.8
12,343.4
1,346.2
—
(15.8)
—
(7.2)
109.2
—
109.2
—
68.0
1.0
69.0
32.8
(12.4)
(27.7)
5.8
(7.0)
—
375.3
375.3
—
—
—
—
—
—
—
—
—
—
—
272.6
24.7
—
—
—
—
—
—
(15.1)
(17.0)
(39.1)
—
(39.1)
(1.2)
(30.1)
—
(31.3)
—
2.5
—
(5.8)
—
(1.2)
—
190.7
375.3
(1.2)
16,068.0
— 12,194.3
16.4
0.6
17.0
153.4
50.4
12,398.1
0.5
1,676.8
7.1
24.7
—
1.0
(2.8)
(18.8)
—
(45.3)
Income (loss) before income taxes .. $ 1,957.2
$
48.7
$
117.8
$
(7.7) $
(4.5) $
(51.5) $ 2,060.0
Summary Cash Flow Information:
Depreciation and amortization.....
$
53.4
$
0.3
$
1.4
$
Cash provided by (used in)
operating activities ...................
$ 1,001.7
$ (320.3) $ (116.6) $
6.8
0.8
$
$
— $
0.5
$
62.4
(10.5) $
(9.9) $
545.2
______________
(1) Results are presented from the date of acquisition and on Forestar’s historical cost basis, consistent with the manner in which
management evaluates segment performance. All purchase accounting adjustments are included in the Other Adjustments
column.
(2) Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.
(3) Amounts represent the elimination of intercompany transactions and the reclassification of Forestar interest expense to
inventory.
(4) Amounts represent purchase accounting adjustments related to the Forestar acquisition.
(5) Amount in the Eliminations column represents the profit on lots sold from Forestar to the homebuilding segment. Intercompany
profit is eliminated in the consolidated financial statements when Forestar sells lots to the homebuilding segment and is
recognized in the consolidated financial statements when the homebuilding segment closes homes on the lots to homebuyers.
77
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Year Ended September 30, 2017
Homebuilding
Financial
Services
Other (1)
Consolidated
(In millions)
Revenues:
Home sales...........................................................................
$
13,653.2
$
— $
— $
13,653.2
Land/lot sales and other.......................................................
Financial services ................................................................
88.3
—
13,741.5
Cost of sales:
Home sales...........................................................................
10,927.8
Land/lot sales and other.......................................................
Inventory and land option charges.......................................
Selling, general and administrative expense ...........................
Other (income) expense ..........................................................
74.8
40.2
11,042.8
1,220.4
(11.0)
—
349.5
349.5
—
—
—
—
239.3
(14.3)
—
—
—
—
—
—
—
11.9
(0.2)
88.3
349.5
14,091.0
10,927.8
74.8
40.2
11,042.8
1,471.6
(25.5)
Income (loss) before income taxes..........................................
$
1,489.3
$
124.5
$
(11.7) $
1,602.1
Summary Cash Flow Information:
Depreciation and amortization ............................................
Cash provided by (used in) operating activities ..................
$
$
49.5
303.7
$
$
1.5
139.1
$
$
3.7
$
(2.6) $
54.7
440.2
_____________
(1) Amounts represent the aggregate results of certain subsidiaries that are immaterial for separate reporting.
78
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Homebuilding Inventories by Reporting Segment (1)
East ......................................................................................................................................... $
Midwest ..................................................................................................................................
Southeast ................................................................................................................................
South Central..........................................................................................................................
Southwest ...............................................................................................................................
West........................................................................................................................................
Corporate and unallocated (2) ................................................................................................
$
________________________
September 30,
2019
2018
(In millions)
1,288.8
836.8
2,768.0
2,533.2
574.4
2,056.0
228.4
10,285.6
$
$
1,192.0
583.1
2,668.7
2,439.4
499.7
2,268.5
223.7
9,875.1
(1) Homebuilding inventories are the only assets included in the measure of homebuilding segment assets used by the Company’s chief
operating decision makers.
(2) Corporate and unallocated consists primarily of capitalized interest and property taxes.
Homebuilding Results by Reporting Segment
Revenues
East ............................................................................................................. $
Midwest ......................................................................................................
Southeast.....................................................................................................
South Central ..............................................................................................
Southwest....................................................................................................
West ............................................................................................................
$
Inventory and Land Option Charges
East ............................................................................................................. $
Midwest ......................................................................................................
Southeast.....................................................................................................
South Central ..............................................................................................
Southwest....................................................................................................
West ............................................................................................................
$
Income Before Income Taxes (1)
East ............................................................................................................. $
Midwest ......................................................................................................
Southeast.....................................................................................................
South Central ..............................................................................................
Southwest....................................................................................................
West ............................................................................................................
$
________________________
2019
Year Ended September 30,
2018
(In millions)
2017
2,290.2
1,123.1
4,977.8
4,202.4
772.6
3,650.8
17,016.9
2.7
3.5
10.7
11.6
0.5
24.2
53.2
238.8
57.7
584.7
551.1
100.4
378.0
1,910.7
$
$
$
$
$
$
1,893.4
858.9
4,578.6
3,769.9
768.7
3,754.3
15,623.8
2.3
5.1
28.8
4.6
0.9
7.1
48.8
217.3
77.5
536.0
506.1
97.4
522.9
1,957.2
$
$
$
$
$
$
1,640.1
736.5
4,087.6
3,383.1
597.5
3,296.7
13,741.5
13.6
1.8
8.7
4.1
1.6
10.4
40.2
153.9
49.1
450.3
439.1
39.6
357.3
1,489.3
(1) Expenses maintained at the corporate level consist primarily of interest and property taxes, which are capitalized and amortized to cost
of sales or expensed directly, and the expenses related to operating the Company’s corporate office. The amortization of capitalized
interest and property taxes is allocated to each homebuilding segment based on the segment’s cost of sales, while expenses associated
with the corporate office are allocated to each homebuilding segment based on the segment’s inventory balances.
79
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE C – INVENTORIES
At the end of each quarter during fiscal 2019, the Company reviewed the performance and outlook for all of its
communities and land inventories for indicators of potential impairment and performed detailed impairment evaluations
and analyses when necessary. As of September 30, 2019, the Company performed detailed impairment evaluations of
communities and land inventories with a combined carrying value of $55.9 million and recorded impairment charges of
$7.1 million during the fourth quarter to reduce the carrying value of impaired communities and land to fair value. Total
impairment charges during fiscal 2019, 2018 and 2017 were $25.7 million, $11.8 million and $23.2 million, respectively.
Inventory impairments and the land option charges discussed below are included in cost of sales in the consolidated
statements of operations.
During fiscal 2019, 2018 and 2017, earnest money and pre-acquisition cost write-offs related to land purchase
contracts that the Company has terminated or expects to terminate were $28.3 million, $14.1 million and $17.0 million,
respectively. Total inventory and land option charges for fiscal 2018 also included a charge of $24.5 million related to the
settlement of an outstanding dispute associated with a land transaction.
In fiscal 2018, the Forestar segment sold a portion of its assets for $232 million. This strategic asset sale included
projects owned both directly and indirectly through ventures. The total net proceeds after certain purchase price
adjustments, closing costs and other costs associated with selling these projects was $217.5 million, and a gain on the
sale of these assets of $0.7 million is included in the Company’s consolidated statement of operations for the year ended
September 30, 2018.
80
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE D – NOTES PAYABLE
The Company’s notes payable at their carrying amounts consist of the following:
Homebuilding:
Unsecured:
Revolving credit facility ..................................................................................... $
3.75% senior notes due 2019 (1) .................................................................................
4.0% senior notes due 2020 (1) ...................................................................................
2.55% senior notes due 2020 (1) .................................................................................
4.375% senior notes due 2022 (1)...............................................................................
4.75% senior notes due 2023 (1) .................................................................................
5.75% senior notes due 2023 (1) .................................................................................
Other secured notes .................................................................................................
Forestar:
Unsecured:
Revolving credit facility......................................................................................
3.75% convertible senior notes due 2020 (2) ............................................................
8.0% senior notes due 2024 (3)....................................................................................
September 30,
2019
2018
(In millions)
— $
—
499.6
398.9
348.8
298.9
398.4
103.0
2,047.6
—
119.1
343.8
462.9
—
499.6
498.8
397.9
348.4
298.7
398.0
4.5
2,445.9
—
119.9
—
119.9
Financial Services:
Mortgage repurchase facility...................................................................................
888.9
3,399.4
$
637.7
3,203.5
$
__________________
(1) Debt issuance costs that were deducted from the carrying amounts of the homebuilding senior notes totaled $5.4 million
and $8.5 million at September 30, 2019 and 2018, respectively.
(2) Forestar’s 3.75% convertible senior notes due 2020 include an unamortized fair value adjustment of $2.4 million and
$8.2 million at September 30, 2019 and 2018, respectively.
(3) Debt issuance costs that were deducted from the carrying amount of Forestar’s 8.0% senior notes totaled $6.2 million at
September 30, 2019.
As of September 30, 2019, maturities of consolidated notes payable, assuming the mortgage repurchase facility is
not extended or renewed, are $1.6 billion in fiscal 2020, $403.3 million in fiscal 2021, $350.4 million in fiscal 2022,
$700.4 million in fiscal 2023 and $351.5 million in fiscal 2024.
Homebuilding:
At September 30, 2019, the Company had a $1.325 billion senior unsecured homebuilding revolving credit facility
with an uncommitted accordion feature that could increase the size of the facility to $1.9 billion, subject to certain
conditions and availability of additional bank commitments. The facility also provided for the issuance of letters of credit
with a sublimit equal to approximately 50% 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. At September 30, 2019, there were no borrowings outstanding and $141.2
million of letters of credit issued under the revolving credit facility, resulting in available capacity of approximately $1.2
billion. Borrowings and repayments under the facility totaled $2.1 billion each during fiscal 2019.
81
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In October 2019, the homebuilding revolving credit facility was amended to increase its capacity to $1.59 billion
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 amendment also extended the facility’s maturity date
from September 25, 2023 to October 2, 2024 and increased the letter of credit sublimit to 100% of the revolving credit
commitment.
The Company’s homebuilding revolving credit facility imposes restrictions on its operations and activities,
including requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if the
leverage ratio exceeds a certain level. These covenants are measured as defined in the credit agreement governing the
facility and are reported to the lenders quarterly. A failure to comply with these financial covenants could allow the
lending banks to terminate the availability of funds under the revolving credit facility or cause any outstanding
borrowings to become due and payable prior to maturity. The credit agreement governing the facility and the indenture
governing the senior notes also impose restrictions on the creation of secured debt and liens. At September 30, 2019, the
Company was in compliance with all of the covenants, limitations and restrictions of its homebuilding revolving credit
facility and public debt obligations.
D.R. Horton has an automatically effective universal shelf registration statement filed with the Securities and
Exchange Commission (SEC) in August 2018, registering debt and equity securities that the Company may issue from
time to time in amounts to be determined.
In March 2019, the Company repaid $500 million principal amount of its 3.75% senior notes at maturity. In
October 2019, the Company 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%.
The key terms of the Company’s homebuilding senior notes outstanding as of September 30, 2019 are summarized
below.
Notes Payable
4.0% senior notes ................
2.55% senior notes ..............
4.375% senior notes ............
4.75% senior notes ..............
5.75% senior notes ..............
_____________
Principal
Amount
(In millions)
$500.0
$400.0
$350.0
$300.0
$400.0
Date Issued
Date Due
Redeemable
Prior to
Maturity (1)
Effective
Interest Rate (2)
February 2015
February 15, 2020
December 2017
December 1, 2020
September 2012
September 15, 2022
February 2013
February 15, 2023
August 2013
August 15, 2023
Yes
Yes
Yes
Yes
Yes
4.2%
2.8%
4.5%
4.9%
5.9%
(1) The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to
the greater of 100% of their principal amount or the present value of the remaining scheduled payments discounted
to the redemption date, plus accrued and unpaid interest.
(2) Interest is payable semi-annually on each of the series of senior notes. The annual effective interest rate is calculated
after giving effect to the amortization of debt issuance costs.
82
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
All series of homebuilding senior notes and borrowings under the homebuilding revolving credit facility are senior
obligations and rank pari passu in right of payment to all existing and future unsecured indebtedness and senior to all
existing and future indebtedness expressly subordinated to them. The homebuilding senior notes and borrowings under
the homebuilding revolving credit facility are guaranteed by entities that hold approximately 79% of the Company’s
assets. Upon the occurrence of both a change of control of the Company and a ratings downgrade event, as defined in the
indenture governing its senior notes, the Company would be required in certain circumstances to offer to repurchase
these notes at 101% of their principal amount, along with accrued and unpaid interest. Also, a change of control as
defined in the revolving credit facility would constitute an event of default under the revolving credit facility, which
could result in the acceleration of any borrowings outstanding under the facility and the termination of the commitments
thereunder.
Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $500 million of the Company’s
debt securities. The authorization has no expiration date. All of the $500 million authorization was remaining at
September 30, 2019.
Forestar:
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. Letters of credit issued under the facility reduce the available
borrowing capacity. At September 30, 2019, there were no borrowings outstanding and $29.7 million of letters of credit
issued under the revolving credit facility. Borrowings under the revolving credit facility are subject to a borrowing base
based on Forestar’s book value of its real estate assets and unrestricted cash. At September 30, 2019, the borrowing base
limited the available capacity under the revolving credit facility to $339.6 million. Borrowings and repayments under the
facility totaled $85 million each during fiscal 2019.
In October 2019, the Forestar revolving credit facility was amended to extend its maturity date from August 16,
2021 to October 2, 2022. The maturity date may 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.
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. At September 30, 2019, Forestar was in
compliance with all of the covenants, limitations and restrictions of its revolving credit facility.
At September 30, 2019, the principal amount of Forestar’s 3.75% convertible senior notes due March 2020 was
$118.9 million. Forestar intends to settle the principal amount of these notes in cash at maturity, with any excess
conversion value to be settled in shares of its common stock.
In April 2019, Forestar issued $350 million principal amount of 8.0% senior notes pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended. The notes mature April 15, 2024, 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 8.5%. These notes may be redeemed prior to maturity, subject to certain
limitations and premiums defined in the indenture agreement.
Forestar’s revolving credit facility, its senior notes and its convertible senior notes are not guaranteed by D.R.
Horton, Inc. or any of the subsidiaries that guarantee the Company’s homebuilding debt.
83
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Financial Services:
The Company’s mortgage subsidiary, DHI Mortgage, has a mortgage repurchase facility that provides financing
and liquidity to DHI Mortgage by facilitating purchase transactions in which DHI Mortgage transfers eligible loans to
the counterparties upon receipt of funds from the counterparties. DHI Mortgage then has the right and obligation to
repurchase the purchased loans upon their sale to third-party purchasers in the secondary market or within specified time
frames from 45 to 60 days in accordance with the terms of the mortgage repurchase facility. The total capacity of the
facility is $900 million; however, the capacity increases, without requiring additional commitments, to $1.1 billion for
approximately 45 days at fiscal year end. The capacity can also be increased to $1.2 billion subject to the availability of
additional commitments. The maturity date of the facility is February 21, 2020.
As of September 30, 2019, $1.0 billion of mortgage loans held for sale with a collateral value of $972.0 million
were pledged under the mortgage repurchase facility. DHI Mortgage had an obligation of $888.9 million outstanding
under the mortgage repurchase facility at September 30, 2019 at a 3.7% annual interest rate.
The mortgage repurchase facility is not guaranteed by D.R. Horton, Inc. or any of the subsidiaries that guarantee
the Company’s homebuilding debt. The facility contains financial covenants as to the mortgage subsidiary’s minimum
required tangible net worth, its maximum allowable leverage ratio and its minimum required liquidity. These covenants
are measured and reported to the lenders monthly. At September 30, 2019, DHI Mortgage was in compliance with all of
the conditions and covenants of the mortgage repurchase facility.
NOTE E – CAPITALIZED INTEREST
The following table summarizes the Company’s interest costs incurred, capitalized and expensed during the years
ended September 30, 2019, 2018 and 2017.
2019
Year Ended September 30,
2018
(In millions)
2017
Capitalized interest, beginning of year ....................................................... $
162.7
$
167.9
$
Interest incurred (1) ....................................................................................
Interest charged to cost of sales ..................................................................
140.2
(122.8)
125.4
(130.6)
Capitalized interest, end of year ................................................................. $
180.1
$
162.7
$
191.2
129.3
(152.6)
167.9
_____________
(1) Interest incurred included interest on the Company's mortgage repurchase facility of $16.1 million, $12.1 million
and $8.5 million in fiscal 2019, 2018 and 2017, respectively. Also included in interest incurred is Forestar interest
of $19.4 million and $3.4 million in fiscal 2019 and 2018, respectively.
84
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE F – MORTGAGE LOANS
Mortgage Loans Held for Sale and Related Derivatives
Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying
property. At September 30, 2019, mortgage loans held for sale had an aggregate carrying value of $1.1 billion and an
aggregate outstanding principal balance of $1.0 billion. At September 30, 2018, mortgage loans held for sale had an
aggregate carrying value of $796.4 million and an aggregate outstanding principal balance of $776.1 million. During the
years ended September 30, 2019, 2018 and 2017, mortgage loans originated totaled $8.7 billion, $7.6 billion and $6.8
billion, respectively, and mortgage loans sold totaled $8.4 billion, $7.4 billion and $6.8 billion, respectively. The
Company had gains on sales of loans and servicing rights of $319.4 million, $265.1 million and $251.1 million during
the years ended September 30, 2019, 2018 and 2017, respectively. Net gains on sales of loans and servicing rights are
included in revenues in the consolidated statements of operations. Approximately 93% of the mortgage loans sold by
DHI Mortgage during fiscal 2019 were sold to four major financial entities, the largest percentage of which purchased
32% of the total loans sold.
To manage the interest rate risk inherent in its mortgage operations, the Company hedges its risk using derivative
instruments, generally forward sales of mortgage-backed securities (MBS), which are referred to as “hedging
instruments” in the following discussion. The Company does not enter into or hold derivatives for trading or speculative
purposes.
Newly originated loans that have been closed but not committed to third-party purchasers are hedged to mitigate
the risk of changes in their fair value. Hedged loans are committed to third-party purchasers typically within three days
after origination. The notional amounts of the hedging instruments used to hedge mortgage loans held for sale vary in
relationship to the underlying loan amounts, depending on the movements in the value of each hedging instrument
relative to the value of the underlying mortgage loans. The fair value change related to the hedging instruments generally
offsets the fair value change in the mortgage loans held for sale. The net fair value change, which for the years ended
September 30, 2019, 2018 and 2017 was not significant, is recognized in revenues in the consolidated statements of
operations. At September 30, 2019 and 2018, the Company’s mortgage loans held for sale that were not committed to
third-party purchasers totaled $663.8 million and $575.9 million, respectively, and the notional amounts of the hedging
instruments related to those loans totaled $663.8 million and $575.8 million, respectively.
Other Mortgage Loans and Loss Reserves
Mortgage loans are sold with limited recourse provisions derived from industry-standard representations and
warranties in the relevant agreements. These representations and warranties primarily involve the absence of
misrepresentations by the borrower or other parties, the appropriate underwriting of the loan and in some cases, a
required minimum number of payments to be made by the borrower. The Company generally does not retain any other
continuing interest related to mortgage loans sold in the secondary market. The majority of other mortgage loans consists
of loans repurchased due to these limited recourse obligations. Typically, these loans are impaired, and some result in
real estate owned through the foreclosure process. At September 30, 2019 and 2018, the Company’s total other mortgage
loans and real estate owned, before loss reserves, totaled $11.4 million and $9.1 million, respectively.
The Company has recorded reserves for estimated losses on other mortgage loans, real estate owned and future
loan repurchase obligations due to the limited recourse provisions, all of which are recorded as reductions of revenue.
The loss reserve for loan repurchase and settlement obligations is estimated based on analysis of the volume of
mortgages originated, loan repurchase requests received, actual repurchases and losses through the disposition of such
loans or requests and discussions with mortgage purchasers. The reserve balances at September 30, 2019 and 2018
totaled $8.7 million and $8.4 million, respectively.
85
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other mortgage loans and real estate owned net of the related loss reserves are included in other assets, while loan
repurchase obligations are included in accrued expenses and other liabilities in the Company’s consolidated balance
sheets.
Loan Commitments and Related Derivatives
The Company is party to interest rate lock commitments (IRLCs), which are extended to borrowers who have
applied for loan funding and meet defined credit and underwriting criteria. At September 30, 2019 and 2018, the notional
amount of IRLCs, which are accounted for as derivative instruments recorded at fair value, totaled $727.9 million and
$485.3 million, respectively.
The Company manages interest rate risk related to its IRLCs through the use of best-efforts whole loan delivery
commitments and hedging instruments. These instruments are considered derivatives in an economic hedge and are
accounted for at fair value with gains and losses recognized in revenues in the consolidated statements of operations. At
September 30, 2019 and 2018, the notional amount of best-efforts whole loan delivery commitments totaled $25.2
million and $25.6 million, respectively, and the notional amount of hedging instruments related to IRLCs not yet
committed to purchasers totaled $636.2 million and $430.2 million, respectively.
From time to time, the Company enters into forward sales of MBS as part of a program to offer below market
interest rate financing to its homebuyers in certain markets. At September 30, 2019, the Company had MBS totaling
$111.4 million that did not yet have interest rate lock commitments or closed loans created or assigned and recorded a
liability of $0.5 million for the fair value of such MBS position.
NOTE G – INCOME TAXES
Income Tax Expense
The components of the Company’s income tax expense are as follows:
2019
Year Ended September 30,
2018
(In millions)
2017
Current tax expense:
Federal.............................................................................................. $
407.3
$
373.2
$
State..................................................................................................
Deferred tax expense:
Federal..............................................................................................
State..................................................................................................
79.3
486.6
13.9
6.2
20.1
53.6
426.8
158.7
12.2
170.9
Total income tax expense...................................................................... $
506.7
$
597.7
$
425.6
27.3
452.9
87.9
22.9
110.8
563.7
86
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Company’s effective tax rate was 23.8%, 29.0% and 35.2% in fiscal 2019, 2018 and 2017, respectively. The
effective tax rates for fiscal 2019 and 2018 reflect the impact of the Tax Cuts and Jobs Act (Tax Act), which was enacted
into law in December 2017. The Tax Act reduced the federal corporate tax rate from 35% to 21% for all corporations
effective January 1, 2018. For fiscal year companies, the change in law required the application of a blended tax rate in
the year of change, which for the Company was 24.5% for the fiscal year ended September 30, 2018. For the fiscal year
ended September 30, 2019 and thereafter, the applicable statutory federal tax rate is 21%. The Tax Act also repealed the
domestic production activities deduction effective for the Company beginning October 1, 2018. The effective tax rates
for fiscal year 2019 and 2018 also include a tax benefit related to stock-based compensation.
The fiscal year 2018 effective tax rate also included the remeasurement of the Company’s deferred tax assets and
liabilities as a result of the Tax Act, the release of a valuation allowance against deferred tax assets related to Forestar
and the enactment of the Bipartisan Budget Act of 2018, which retroactively extended the expiration date of the federal
energy efficient home credit from December 31, 2016 until December 31, 2017. The effective tax rates for all years
include an expense for state income taxes.
Reconciliation of Expected Income Tax Expense
Differences between income tax expense and tax computed by applying the federal statutory rate of 21% in fiscal
2019, 24.5% in fiscal 2018 and 35% in fiscal 2017 to income before income taxes during each year is due to the
following:
2019
Year Ended September 30,
2018
(In millions)
2017
Income taxes at federal statutory rate ................................................... $
446.3
$
505.0
$
560.7
Increase (decrease) in tax resulting from:
State income taxes, net of federal benefit ........................................
Domestic production activities deduction........................................
Valuation allowance.........................................................................
Tax credits........................................................................................
Excess tax benefit from stock-based compensation.........................
Tax law change from enactment of Tax Act ....................................
Other ................................................................................................
69.1
—
(0.2)
(1.6)
(16.1)
—
9.2
59.4
(36.7)
(7.3)
(19.0)
(21.2)
108.7
8.8
42.3
(39.8)
0.8
(3.5)
—
—
3.2
Total income tax expense...................................................................... $
506.7
$
597.7
$
563.7
87
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred Income Taxes
Deferred tax assets and liabilities reflect the tax consequences of temporary differences between the financial
statement bases of assets and liabilities and their tax bases, tax losses and credit carryforwards. Components of deferred
income taxes are summarized as follows:
September 30,
2019
2018
(In millions)
Deferred tax assets:
Inventory costs............................................................................................................. $
39.8
$
Inventory impairments.................................................................................................
Warranty and construction defect costs.......................................................................
Net operating loss carryforwards.................................................................................
Tax credit carryforwards..............................................................................................
Incentive compensation plans......................................................................................
Deferred income ..........................................................................................................
Other ............................................................................................................................
Total deferred tax assets ...................................................................................................
Valuation allowance .........................................................................................................
27.9
135.1
31.5
3.5
65.1
0.2
7.0
310.1
(18.7)
Total deferred tax assets, net of valuation allowance....................................................... $
291.4
$
Deferred tax liabilities:
Deferral of profit on home closings.............................................................................
Depreciation of fixed assets.........................................................................................
Other ............................................................................................................................
Total deferred tax liabilities.............................................................................................. $
Deferred income taxes, net............................................................................................... $
95.4
14.2
18.7
128.3
163.1
$
$
40.9
31.8
121.8
38.1
4.3
55.2
1.3
5.8
299.2
(17.7)
281.5
64.9
10.7
11.9
87.5
194.0
D.R. Horton has $16.4 million of tax benefits for state net operating loss (NOL) carryforwards that expire at
various times depending on the tax jurisdiction. Of the total amount, $6.2 million of the tax benefits expire over the next
ten years and the remaining $10.2 million expires from fiscal years 2030 to 2039.
Forestar has $11.4 million of tax benefits for federal NOL carryforwards which have no expiration date.
Additionally, Forestar has $3.7 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 the Company’s consolidated results of operations
or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and
the valuation of the Company’s deferred tax assets.
88
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Valuation Allowance
The Company has a valuation allowance of $18.7 million at September 30, 2019 and $17.7 million at
September 30, 2018 related to state deferred tax assets for NOL carryforwards that are more likely than not to expire
before being realized. The Company will continue to evaluate both the positive and negative evidence in determining the
need for a valuation allowance with respect to the remaining state NOL carryforwards. Any reversal of the valuation
allowance in future periods will impact the Company’s effective tax rate.
Regulations and Legislation
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 2016 through 2019.
D.R. Horton is currently being audited by various states; however, to date, management is not aware of any significant
findings identified by the taxing authorities.
Forestar is subject to federal income tax and state income tax in multiple jurisdictions. The federal statute of
limitations for tax years prior to 2017 is effectively closed. The statute of limitations in major state jurisdictions for tax
years prior to 2015 is closed. The Internal Revenue Service recently completed an audit of Forestar’s 2016 tax year with
no changes. Forestar is not currently being audited by any state jurisdictions.
NOTE H – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share.
2019
Year Ended September 30,
2018
(In millions)
2017
Numerator:
Net income attributable to D.R. Horton, Inc. ...................................... $
1,618.5
$
1,460.3
$
1,038.4
Denominator:
Denominator for basic earnings per share —
weighted average common shares ...................................................
372.6
376.6
374.3
Effect of dilutive securities:
Employee stock awards....................................................................
4.8
6.8
4.6
Denominator for diluted earnings per share —
adjusted weighted average common shares .....................................
377.4
383.4
378.9
Basic net income per common share attributable to D.R. Horton, Inc....... $
Diluted net income per common share attributable to D.R. Horton, Inc.... $
4.34
4.29
$
$
3.88
3.81
$
$
2.77
2.74
89
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE I – STOCKHOLDERS’ EQUITY
The Company has an automatically effective universal shelf registration statement, filed with the SEC in August
2018, registering debt and equity securities that it may issue 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. On September 30, 2019, Forestar issued 6.0 million shares of its common stock for $17.50
per share in a public underwritten offering. Net proceeds to Forestar from this offering after deducting underwriting
discounts and commissions and other expenses were $100.7 million. As a result of the issuance, D.R. Horton's ownership
of Forestar's outstanding common shares decreased from 75% to approximately 66%. Following the offering, $394.3
million remains available for issuance under Forestar’s shelf registration statement.
At September 30, 2019, the Company had 392,172,821 shares of common stock issued and 368,431,454 shares
outstanding. No shares of preferred stock were issued or outstanding.
During fiscal 2019, the Company repurchased 11.9 million shares of its common stock for $479.8 million.
Effective July 30, 2019, the Board of Directors authorized the repurchase of up to $1.0 billion of the Company’s
common stock, which replaced the previous authorization. The new authorization has no expiration date. Shares
repurchased under the new authorization reduced the remaining authorization amount to $895.7 million at September 30,
2019.
The Board of Directors approved and paid quarterly cash dividends of $0.15 per common share and $0.125 per
common share in fiscal 2019 and 2018, respectively. In November 2019, the Board of Directors approved a cash
dividend of $0.175 per common share, payable on December 11, 2019, to stockholders of record on November 27, 2019.
NOTE J – EMPLOYEE BENEFIT PLANS
Deferred Compensation Plans
The Company has a 401(k) plan for all employees who have been with the Company for a period of six months or
more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the
form of profit sharing may also be made at the Company’s discretion. The Company recorded $21.7 million, $18.4
million and $16.0 million of expense for matching contributions in fiscal 2019, 2018 and 2017, respectively.
The Company’s Supplemental Executive Retirement Plan (SERP) is a non-qualified deferred compensation
program that provides benefits payable to certain management employees upon retirement, death or termination of
employment. Under the SERP, the Company accrues an unfunded benefit based on a percentage of the eligible
employees’ salaries, as well as an interest factor based upon a predetermined formula. The Company’s liabilities related
to the SERP were $40.6 million and $35.4 million at September 30, 2019 and 2018, respectively. The Company recorded
$5.8 million, $5.4 million and $4.9 million of expense for this plan in fiscal 2019, 2018 and 2017, respectively.
The Company has a deferred compensation plan available to a select group of employees which allows
participating employees to contribute compensation into the plan on a before tax basis and defer income taxation on the
contributions until the funds are withdrawn from the plan. The participating employees designate investments for their
contributions; however, the Company is not required to invest the contributions in the designated investments. The
Company’s net liabilities related to the deferred compensation plan were $78.6 million and $69.3 million at
September 30, 2019 and 2018, respectively. The Company records as expense the amount that the employee
contributions would have earned had the funds been invested in the designated investments. Related to this plan, the
Company recorded expense of $2.9 million, $5.8 million and $6.3 million in fiscal 2019, 2018 and 2017, respectively.
90
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan provides eligible employees the opportunity to purchase common
stock of the Company at a discounted price of 85% of the fair market value of the stock on the designated dates of
purchase. The price to eligible employees may be further discounted depending on the average fair market value of the
stock during the period and certain other criteria. Under the terms of the plan, the total fair market value of common
stock that an eligible employee may purchase each year is limited to the lesser of 15% of the employee’s annual
compensation or $25,000. Under the plan, employees purchased 141,661 shares for $4.6 million in fiscal 2019,
114,340 shares for $4.0 million in fiscal 2018 and 111,527 shares for $2.8 million in fiscal 2017. At September 30, 2019,
the Company had 3.0 million shares of common stock reserved for issuance pursuant to the Employee Stock Purchase
Plan.
Incentive Bonus Plan
The Company’s Incentive Bonus Plan provides for the Compensation Committee to award short-term performance
bonuses to senior management based upon the level of achievement of certain criteria. For fiscal 2019, 2018 and 2017,
the Compensation Committee approved awards whereby certain executive officers could earn performance bonuses
based upon percentages of the Company’s pre-tax income. Compensation expense related to these plans was $24.4
million, $23.7 million and $16.8 million in fiscal 2019, 2018 and 2017, respectively.
Stock-Based Compensation
The Company’s Stock Incentive Plan provides for the granting of stock options and restricted stock units to
executive officers, other key employees and non-management directors. Restricted stock unit awards may be based on
performance (performance-based) or on service over a requisite time period (time-based). At September 30, 2019, the
Company had 21.1 million shares of common stock reserved for issuance and 13.0 million shares available for future
grants under the Stock Incentive Plan.
Stock Options
Stock options are granted at exercise prices which equal the market value of the Company’s common stock at the
date of the grant. The options outstanding at September 30, 2019 are all exercisable and expire 10 years after the dates on
which they were granted.
The Company did not grant stock options during fiscal 2019, 2018 or 2017. The following table provides
information related to stock option activity during those years.
2019
Year Ended September 30,
2018
2017
Weighted
Average
Exercise
Price
Stock
Options
Weighted
Average
Exercise
Price
Stock
Options
Weighted
Average
Exercise
Price
Stock
Options
Outstanding at beginning of year ......
5,856,959
$
17.25
8,431,348
$
16.92
11,395,917
$
16.69
Exercised ...........................................
(2,634,802)
Cancelled or expired .........................
(38,000)
Outstanding at end of year ................
3,184,157
Exercisable at end of year .................
3,184,157
14.47
18.98
19.53
19.53
$
$
(2,547,139)
(27,250)
5,856,959
4,955,392
$
$
16.10
22.08
17.25
17.07
(2,770,569)
(194,000)
8,431,348
5,772,214
$
$
15.83
18.83
16.92
16.01
91
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The aggregate intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $70.6 million, $76.8
million and $49.5 million, respectively. The intrinsic value of a stock option is the amount by which the market value of
the underlying stock exceeds the option exercise price.
The aggregate intrinsic value of options outstanding and exercisable at September 30, 2019 was $105.6 million.
Exercise prices for options outstanding at September 30, 2019 ranged from $9.97 to $23.86. The weighted average
remaining contractual lives of options outstanding and exercisable at September 30, 2019 is 3.4 years.
For fiscal 2019, 2018 and 2017, compensation expense related to stock options was $1.0 million, $6.9 million and
$15.1 million, respectively. At September 30, 2019, there was no unrecognized compensation expense related to stock
option awards as all of the awards are fully expensed.
Performance-Based Restricted Stock Unit (RSU) Equity Awards
During fiscal 2019, 2018 and 2017, performance-based RSU equity awards that vest at the end of three-year
performance periods were granted to the Company’s executive officers. The number of units that ultimately vest depends
on the Company’s relative position as compared to its peers in achieving certain performance criteria and can range from
0% to 200% of the number of units granted. The performance criteria are total shareholder return, return on investment,
SG&A expense containment and gross profit. The performance-based RSUs have no dividend or voting rights during the
performance period. Each of these performance-based RSUs represents the contingent right to receive one share of the
Company’s common stock if the vesting conditions are satisfied. Compensation expense related to these grants is based
on the Company’s performance against the peer group, the elapsed portion of the performance period and the grant date
fair value of the award.
The following table provides additional information related to the performance-based RSUs outstanding at
September 30, 2019.
Grant Date
Vesting Date
Target Number
of Performance
Units
Grant Date
Fair Value
per Unit
Compensation Expense
Year Ended September 30,
2018
2019
2017
November 2016
September 2019
November 2017
September 2020
November 2018
September 2021
330,000
330,000
360,000
$
29.20
$
45.79
37.75
$
2.9
8.9
6.1
$
17.9
$
3.9
4.8
—
8.7
$
$
5.1
—
—
5.1
(In millions)
In November 2019, the Compensation Committee approved the payout of the performance-based RSUs that vested
in September 2019 in the form of 495,000 shares of common stock to satisfy the awards.
Time-Based Restricted Stock Unit (RSU) Equity Awards
Time-based RSUs represent the contingent right to receive one share of the Company’s common stock if the
vesting conditions are satisfied. The time-based RSUs have no dividend or voting rights during the vesting period.
During fiscal 2019, 2018 and 2017, time-based RSUs were granted to the Company’s executive officers, other key
employees and non-management directors (collectively, approximately 900, 920 and 600 recipients, respectively). These
awards vest annually in equal installments over periods of three to five years.
92
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table provides additional information related to time-based RSU activity during fiscal 2019, 2018
and 2017. The number of restricted stock units vested in fiscal 2019 includes shares of common stock withheld by the
Company on behalf of employees to satisfy the tax withholding requirements.
2019
Year Ended September 30,
2018
2017
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Number of
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Outstanding at beginning of year .....
4,797,922
$
Granted .............................................
1,796,200
31.77
33.75
4,365,782
$
1,747,870
Vested ...............................................
(1,430,826)
29.83
(1,149,055)
Cancelled..........................................
(273,762)
Outstanding at end of year ...............
4,889,534
$
32.82
33.01
(166,675)
4,797,922
$
26.09
41.82
25.80
29.56
31.77
3,478,233
$
1,868,660
(792,941)
(188,170)
4,365,782
$
24.12
28.64
24.48
25.21
26.09
The total fair value of shares vested on the vesting date during fiscal 2019, 2018 and 2017 was $56.9 million,
$51.0 million and $25.0 million, respectively. For fiscal 2019, 2018 and 2017, compensation expense related to time-
based RSUs was $51.8 million, $39.3 million and $28.8 million, respectively. At September 30, 2019, there was $99.8
million of unrecognized compensation expense related to unvested time-based RSU awards. This expense is expected to
be recognized over a weighted average period of 3.3 years.
NOTE K – COMMITMENTS AND CONTINGENCIES
Warranty Claims
The Company provides its homebuyers with warranties for defects in structural elements, mechanical systems and
other construction components of the home. Warranty liabilities are established by charging cost of sales for each home
delivered based on management’s estimate of expected warranty-related costs and by accruing for existing warranty
claims. The Company’s warranty liability is based upon historical warranty cost experience in each market in which it
operates and is adjusted to reflect qualitative risks associated with the types of homes built and the geographic areas in
which they are built. The estimation of these costs is subject to a high degree of variability due to uncertainties related to
these factors. Due to the high degree of judgment required in establishing the liability for warranty claims, actual future
costs could differ significantly from current estimated amounts, and it is not possible for the Company to make a
reasonable estimate of the possible loss or range of loss in excess of its warranty liability.
Changes in the Company’s warranty liability during fiscal 2019 and 2018 were as follows:
Warranty liability, beginning of year.................................................................................... $
Warranties issued..................................................................................................................
Changes in liability for pre-existing warranties ...................................................................
Settlements made..................................................................................................................
Warranty liability, end of year .............................................................................................. $
September 30,
2019
2018
(In millions)
202.0
$
92.7
32.0
(79.4)
247.3
$
143.7
81.6
49.3
(72.6)
202.0
93
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The change in liabilities for pre-existing warranties was $32.0 million and $49.3 million in fiscal 2019 and 2018,
respectively. These amounts reflect the Company’s ongoing efforts to improve its customer service and relations, which
in many cases results in the performance of warranty service after the original warranty period has expired. The
Company has increased the amount of its warranties issued as a percentage of home cost of sales to reflect this increase
in warranty costs.
Legal Claims and Insurance
The Company is named as a defendant in various claims, complaints and other legal actions in the ordinary course
of business. At any point in time, the Company is managing several hundred individual claims related to construction
defect matters, personal injury claims, employment matters, land development issues, contract disputes and other
matters. The Company has established reserves for these contingencies based on the estimated costs of pending claims
and the estimated costs of anticipated future claims related to previously closed homes. The estimated liabilities for these
contingencies were $434.7 million and $408.1 million at September 30, 2019 and 2018, respectively, and are included in
accrued expenses and other liabilities in the consolidated balance sheets. Approximately 99% of these reserves related to
construction defect matters at both September 30, 2019 and 2018. Expenses related to the Company’s legal contingencies
were $15.3 million, $41.0 million and $87.8 million in fiscal 2019, 2018 and 2017, respectively.
The Company’s reserves for construction defect claims include the estimated costs of both known claims and
anticipated future claims. As of September 30, 2019, no individual existing claim was material to the Company’s
financial statements. The Company has closed a significant number of homes during recent years and may be subject to
future construction defect claims on these homes. Although regulations vary from state to state, construction defect
issues can generally be reported for up to ten years after the home has closed in many states in which the Company
operates. Historical data and trends regarding the frequency of claims incurred and the costs to resolve claims relative to
the types of products and markets where the Company operates are used to estimate the construction defect liabilities for
both existing and anticipated future claims. These estimates are subject to ongoing revision as the circumstances of
individual pending claims and historical data and trends change. Adjustments to estimated reserves are recorded in the
accounting period in which the change in estimate occurs.
Historical trends in construction defect claims have been inconsistent, and the Company believes they may
continue to fluctuate. The Company also believes that fluctuations in housing market conditions can affect the frequency
and cost of construction defect claims. If the ultimate resolution of construction defect claims resulting from the
Company’s home closings in prior years varies from current expectations, it could significantly change the Company’s
estimates regarding the frequency and timing of claims incurred and the costs to resolve existing and anticipated future
claims, which would impact the construction defect reserves in the future. If the frequency of claims incurred or costs of
existing and future legal claims significantly exceed the Company’s current estimates, they will have a significant
negative impact on its future earnings and liquidity.
The Company’s reserves for legal claims increased from $408.1 million at September 30, 2018 to $434.7 million at
September 30, 2019. The increase in reserves in fiscal 2019 was comparable to fiscal 2018 but there were fewer
payments to resolve legal claims in fiscal 2019 compared to fiscal 2018. Changes in the Company’s legal claims reserves
during fiscal 2019 and 2018 were as follows:
Reserves for legal claims, beginning of year ....................................................................... $
408.1
$
Increase in reserves ..............................................................................................................
Payments ..............................................................................................................................
49.2
(22.6)
Reserves for legal claims, end of year.................................................................................. $
434.7
$
420.6
46.4
(58.9)
408.1
September 30,
2019
2018
(In millions)
94
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In the majority of states in which it operates, the Company has, and requires the majority of the subcontractors it
uses to have, general liability insurance which includes construction defect coverage. The Company’s general liability
insurance policies protect it against a portion of its risk of loss from construction defect and other claims and lawsuits,
subject to self-insured retentions and other coverage limits. For policy years ended June 30, 2007 through 2020, the
Company is self-insured for the first $10 million to $20 million of aggregate completed operations indemnity claims
incurred, depending on the policy year. After the aggregate self-insurance limits have been satisfied, the Company’s
excess loss insurance coverage begins. However, the Company must still pay $0.25 million of any indemnity claim and a
portion of the legal fees incurred for each claim occurrence.
In some states where the Company believes it is too difficult or expensive for its subcontractors to obtain general
liability insurance, the Company has waived its normal subcontractor general liability insurance requirements to obtain
lower costs from subcontractors. In these states, the Company purchases insurance policies from either third-party
carriers or its 100% owned captive insurance subsidiary and names certain subcontractors as additional insureds. The
policies issued by the captive insurance subsidiary represent self-insurance of these risks by the Company. The Company
is self-insured under its captive policies for up to $25 million in aggregate completed operations indemnity claims per
policy year and for the first $0.25 million for each claim occurrence. For all policy years after April 2007 to July 2019,
the captive insurance subsidiary has $15 million of excess loss insurance coverage with a third-party insurer. For policy
year July 2019 to July 2020, the reinsurance amount is $5 million. For policy years 2018 and 2019, after consideration of
the aforementioned $15 million of risk transfer, the Company is self-insured under these captive policies for up to $10
million in aggregate completed operations indemnity claims, plus defense costs, per policy year and for up to $0.25
million for each claim occurrence. For policy year 2020, the Company is self-insured under these captive policies for up
to $20 million in aggregate completed operations indemnity claims, plus defense costs, per policy year and for up to
$0.25 million for each claim occurrence.
The Company is self-insured for the deductible amounts under its workers’ compensation insurance policies. The
deductibles vary by policy year, but in no years exceed $0.5 million per occurrence. The deductible for the 2018, 2019
and 2020 policy years is $0.5 million per occurrence.
The Company estimates and records receivables under its applicable insurance policies related to its estimated
contingencies for known claims and anticipated future construction defect claims on previously closed homes and other
legal claims and lawsuits incurred in the ordinary course of business when recovery is probable. Additionally, the
Company may have the ability to recover a portion of its losses from its subcontractors and their insurance carriers when
the Company has been named as an additional insured on their insurance policies. The Company’s receivables related to
its estimates of insurance recoveries from estimated losses for pending legal claims and anticipated future claims related
to previously closed homes totaled $75.1 million and $54.6 million at September 30, 2019 and 2018, respectively, and
are included in other assets in the consolidated balance sheets.
The estimation of losses related to these reserves and the related estimates of recoveries from insurance policies are
subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to the
Company’s markets and the types of products built, claim frequency, claim settlement costs and patterns, insurance
industry practices and legal interpretations, among others. Due to the high degree of judgment required in establishing
reserves for these contingencies, actual future costs and recoveries from insurance could differ significantly from current
estimated amounts, and it is not possible for the Company to make a reasonable estimate of the possible loss or range of
loss in excess of its reserves.
95
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Land and Lot Purchase Contracts
The Company enters into land and lot purchase contracts to acquire land or lots for the construction of homes. At
September 30, 2019, the Company’s homebuilding segment had total deposits of $515.4 million, consisting of cash
deposits of $496.0 million and promissory notes of $19.4 million, related to contracts to purchase land and lots with a
total remaining purchase price of approximately $7.2 billion. The majority of land and lots under contract are currently
expected to be purchased within three years. Of these amounts, $88.7 million of the deposits related to contracts with
Forestar to purchase land and lots with a remaining purchase price of $953.8 million. A limited number of the
homebuilding land and lot purchase contracts at September 30, 2019, representing $59.8 million of remaining purchase
price, were subject to specific performance provisions that may require the Company to purchase the land or lots upon
the land sellers meeting their respective contractual obligations. Of the $59.8 million remaining purchase price subject to
specific performance provisions, $13.2 million related to contracts between the homebuilding segment and Forestar.
During fiscal 2019 and 2018, Forestar reimbursed the homebuilding segment $34.5 million and $21.2 million,
respectively, for previously paid earnest money and $13.1 million and $15.2 million, respectively, for pre-acquisition and
other due diligence costs related to land purchase contracts whereby the homebuilding segment assigned its rights under
contract to Forestar.
Other Commitments
At September 30, 2019, the Company had outstanding surety bonds of $1.7 billion and letters of credit of $171.7
million to secure performance under various contracts. Of the total letters of credit, $141.2 million were issued under the
homebuilding revolving credit facility, $29.7 million were issued under Forestar’s revolving credit facility and $0.8
million were issued under secured letter of credit agreements.
The Company leases office space and equipment under non-cancelable operating leases. At September 30, 2019,
the future minimum annual lease payments under these agreements are as follows (in millions):
Fiscal 2020........................................................... $
Fiscal 2021...........................................................
Fiscal 2022...........................................................
Fiscal 2023...........................................................
Fiscal 2024...........................................................
Thereafter ............................................................
18.6
12.0
6.2
3.6
1.9
0.2
$
42.5
Rent expense was $30.5 million, $27.8 million and $26.3 million for fiscal 2019, 2018 and 2017, respectively.
96
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE L – OTHER ASSETS, ACCRUED EXPENSES AND OTHER LIABILITIES
The Company’s other assets at September 30, 2019 and 2018 were as follows:
September 30,
2019
2018
(In millions)
Earnest money and refundable deposits ............................................................................... $
540.0
$
445.2
Insurance receivables ...........................................................................................................
Other receivables..................................................................................................................
Prepaid assets .......................................................................................................................
Rental properties ..................................................................................................................
Multi-family rental property held for sale............................................................................
Contract assets - insurance agency commissions.................................................................
Other.....................................................................................................................................
75.1
103.6
49.6
35.5
28.9
39.3
71.3
$
943.3
$
54.6
81.7
36.9
39.2
—
—
44.3
701.9
The Company’s accrued expenses and other liabilities at September 30, 2019 and 2018 were as follows:
September 30,
2019
2018
(In millions)
Reserves for legal claims...................................................................................................... $
434.7
$
Employee compensation and related liabilities....................................................................
Warranty liability..................................................................................................................
Accrued interest....................................................................................................................
Federal and state income tax liabilities ................................................................................
Inventory related accruals ....................................................................................................
Customer deposits ................................................................................................................
Accrued property taxes.........................................................................................................
Other.....................................................................................................................................
282.1
247.3
26.3
33.4
61.5
57.7
40.1
95.0
408.1
252.5
202.0
14.8
35.2
45.5
58.1
38.0
73.3
$
1,278.1
$
1,127.5
97
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE M – FAIR VALUE MEASUREMENTS
Fair value measurements are used for the Company’s mortgage loans held for sale, debt securities collateralized by
residential real estate, IRLCs and other derivative instruments on a recurring basis and are used for inventories, other mortgage
loans, rental properties and real estate owned on a nonrecurring basis, when events and circumstances indicate that the carrying
value is not recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities is as follows:
• Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities. The Company does not
currently have any assets or liabilities measured at fair value using Level 1 inputs.
• Level 2 – Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for
identical or similar instruments in markets that are not active, or by model-based techniques in which all significant
inputs are observable in the market. The Company’s assets and liabilities measured at fair value using Level 2 inputs on a
recurring basis are as follows:
• Mortgage loans held for sale - The fair value of these loans is generally calculated by reference to quoted prices in
secondary markets for commitments to sell mortgage loans with similar characteristics. Closed mortgage loans are
typically sold shortly after origination, which limits exposure to nonperformance by loan buyer counterparties to a
short time period. In addition, the Company actively monitors the financial strength of its counterparties.
•
IRLCs - The fair value of IRLCs is calculated by reference to quoted prices in secondary markets for commitments to
sell mortgage loans with similar characteristics. These valuations do not contain adjustments for expirations as any
expired commitments are excluded from the fair value measurement. The Company generally only issues IRLCs for
products that meet specific purchaser guidelines. Should any purchaser become insolvent, the Company would not be
required to close the transaction based on the terms of the commitment. Since not all IRLCs will become closed
loans, the Company adjusts its fair value measurements for the estimated amount of IRLCs that will not close.
• Loan sale commitments and hedging instruments - The fair values of best-efforts and mandatory loan sale
commitments and derivative instruments such as forward sales of MBS that are utilized as hedging instruments are
calculated by reference to quoted prices for similar assets. The Company mitigates exposure to nonperformance risk
associated with derivative instruments by limiting the number of counterparties and actively monitoring their
financial strength and creditworthiness while requiring them to be well-known institutions with credit ratings equal to
or better than AA- or equivalent. Further, the Company’s derivative contracts typically have short-term durations with
maturities from one to four months. Accordingly, the Company’s risk of nonperformance relative to its derivative
positions is not significant.
The Company’s assets measured at fair value using Level 2 inputs on a nonrecurring basis are a limited number of
mortgage loans held for sale with some degree of impairment affecting their marketability and are reported at the lower
of carrying value or fair value. When available, fair value is determined by reference to quoted prices in the secondary
markets for such assets.
After consideration of nonperformance risk, no additional adjustments were made to the fair value measurements of
mortgage loans held for sale, IRLCs or hedging instruments.
98
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
• Level 3 – Valuation is typically derived from model-based techniques in which at least one significant input is
unobservable and based on the Company’s own estimates about the assumptions that market participants would use to
value the asset or liability.
The Company’s assets measured at fair value using Level 3 inputs on a recurring basis are its debt securities
collateralized by residential real estate and a limited number of mortgage loans held for sale with some degree of
impairment affecting their marketability and for which reference to quoted prices in the secondary markets is not
available.
The Company’s assets measured at fair value using Level 3 inputs that are typically reported at the lower of carrying
value or fair value on a nonrecurring basis are as follows:
•
•
Inventory held and used - In determining the fair values of its inventory held and used in its impairment evaluations,
the Company performs an analysis of the undiscounted cash flows estimated to be generated by those assets. The
most significant factors used to estimate undiscounted future cash flows include pricing and incentive levels actually
realized by the community, the rate at which the homes are sold and the costs incurred to develop the lots and
construct the homes. Inventory held and used measured at fair value represents those communities for which the
estimated undiscounted cash flows are less than their carrying amounts and therefore, the Company has recorded
impairments during the current period to record the inventory at fair value calculated based on its discounted
estimated future cash flows.
Inventory available for sale - The factors considered in determining fair values of the Company’s land held for sale
primarily include actual sale contracts and recent offers received from outside third parties, and may also include
prices for land in recent comparable sales transactions and other market analysis. If the estimated fair value less the
costs to sell an asset is less than the asset’s current carrying value, the asset is written down to its estimated fair value
less costs to sell.
• Certain mortgage loans held for sale - A limited number of mortgage loans held for sale have some degree of
impairment affecting their marketability. For some of these loans, quoted prices in the secondary market are not
available and therefore, a cash flow valuation model is used to determine fair value.
• Certain other mortgage loans, rental properties and real estate owned - Other mortgage loans include performing and
nonperforming mortgage loans, which often become real estate owned through the foreclosure process. The fair
values of other mortgage loans, rental properties and real estate owned are determined based on the Company’s
assessment of the value of the underlying collateral or the value of the property, as applicable. The Company uses
different methods to assess the value of the properties, which may include broker price opinions, appraisals or cash
flow valuation models.
99
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis at
September 30, 2019 and 2018, and the changes in the fair value of the Level 3 assets during fiscal 2019 and 2018.
Balance Sheet Location
Level 1
Level 2
Level 3
Total
Fair Value at September 30, 2019
Debt securities collateralized by residential real estate..........
Mortgage loans held for sale (1) ............................................ Mortgage loans held for sale
Derivatives not designated as hedging instruments (2):
Other assets
(In millions)
$ — $ — $
— 1,055.3
3.9
9.8
3.9
$
1,065.1
Interest rate lock commitments ......................................
Forward sales of mortgage-backed securities.................
Best-efforts and mandatory commitments......................
Other assets
Other liabilities
Other liabilities
—
—
—
19.2
(4.1)
(1.0)
—
—
—
19.2
(4.1)
(1.0)
Balance Sheet Location
Level 1
Level 2
Level 3
Total
Fair Value at September 30, 2018
Debt securities collateralized by residential real estate..........
Mortgage loans held for sale (1) ............................................ Mortgage loans held for sale
Derivatives not designated as hedging instruments (2):
Other assets
Interest rate lock commitments ......................................
Forward sales of mortgage-backed securities.................
Best-efforts and mandatory commitments......................
Other assets
Other assets
Other assets
(In millions)
$ — $ — $
—
—
—
—
784.6
10.5
3.3
0.2
Balance at
September 30,
2018
Level 3 Assets at Fair Value for the Year Ended September 30, 2019
Net transfers
to (out of)
Level 3
Net realized
and unrealized
gains (losses)
Sales and
Settlements
Principal
Reductions
Purchases
3.9
7.8
$
3.9
792.4
—
—
—
10.5
3.3
0.2
Balance at
September 30,
2019
Debt securities collateralized by
residential real estate................ $
Mortgage loans held for sale (1)..
$
3.9
7.8
— $
— $
— $
— $
— $
0.9
—
(5.4)
—
6.5
3.9
9.8
(In millions)
Balance at
September 30,
2017
Level 3 Assets at Fair Value for the Year Ended September 30, 2018
Net transfers
to (out of)
Level 3
Net realized
and unrealized
gains (losses)
Sales and
Settlements
Principal
Reductions
Purchases
Balance at
September 30,
2018
Debt securities collateralized by
residential real estate (3).......... $
Mortgage loans held for sale (1)..
___________________
(In millions)
$
8.8
5.6
— $
— $
(4.9) $
— $
— $
0.6
—
(6.8)
—
8.4
3.9
7.8
(1) The Company typically elects the fair value option upon origination for mortgage loans held for sale. Interest income earned on
mortgage loans held for sale is based on contractual interest rates and included in other income. Mortgage loans held for sale valued
using Level 3 inputs at September 30, 2019 and 2018 include $9.8 million and $7.8 million, respectively, of loans for which the
Company elected the fair value option upon origination and did not sell into the secondary market. Mortgage loans held for sale
totaling $6.5 million and $8.4 million were transferred to Level 3 during fiscal 2019 and 2018, respectively, due to significant
unobservable inputs used in determining the fair value of these loans. The fair value of these mortgage loans held for sale is generally
calculated considering pricing in the secondary market and adjusted for the value of the underlying collateral, including interest rate
risk, liquidity risk and prepayment risk. The Company plans to sell these loans as market conditions permit.
(2) Fair value measurements of these derivatives represent changes in fair value, as calculated by reference to quoted prices for similar
assets, and are reflected in the balance sheet as other assets or accrued expenses and other liabilities. Changes in the fair value of these
derivatives are included in revenues in the consolidated statements of operations.
(3) In August 2018, the Company sold $4.9 million of its debt securities to a third party for $7.3 million. The resulting gain of $2.4
million on the sale is included in other income in the consolidated statement of operations for fiscal 2018.
100
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the Company’s assets measured at fair value on a nonrecurring basis at September 30,
2019 and 2018.
Balance Sheet Location
2019
2018
Fair Value at September 30,
Inventory held and used (a) (b) .........................................................
Inventory available for sale (a) (c) ....................................................
Inventories
Inventories
$
Mortgage loans held for sale (a) (d) ................................................. Mortgage loans held for sale
Other mortgage loans (a) (e) .............................................................
Other assets
___________________
Level 3
(In millions)
$
4.5
—
2.7
1.8
4.4
1.4
2.9
1.0
(a) The fair values included in the table above represent only those assets whose carrying values were adjusted to fair value as a result of
impairment in the respective period and were held at the end of the period.
(b) In performing its impairment analysis of communities, discount rates ranging from 16% to 18% were used in the periods presented.
(c) The fair value of inventory available for sale was determined based on recent offers received from outside third parties, comparable
sales or actual contracts.
(d) These mortgage loans have some degree of impairment affecting their marketability and are valued at the lower of carrying value or
fair value. When available, quoted prices in the secondary market are used to determine fair value (Level 2); otherwise, a cash flow
valuation model is used to determine fair value (Level 3).
(e) The fair values of other mortgage loans was determined based on the value of the underlying collateral.
For the financial assets and liabilities that the Company does not reflect at fair value, the following tables present both
their respective carrying value and fair value at September 30, 2019 and 2018.
Carrying
Value
Fair Value at September 30, 2019
Level 1
Level 2
(In millions)
Level 3
Total
Cash and cash equivalents (a) ................................ $
1,494.3
$
1,494.3
$
Restricted cash (a) ..................................................
Notes payable (b) (c) ..............................................
19.7
3,399.4
19.7
—
— $
—
2,533.9
— $
1,494.3
—
991.9
19.7
3,525.8
Carrying
Value
Fair Value at September 30, 2018
Level 1
Level 2
(In millions)
Level 3
Total
Cash and cash equivalents (a) ................................ $
1,473.1
$
1,473.1
$
Restricted cash (a) ..................................................
Notes payable (b) (c) ..............................................
32.9
3,203.5
32.9
—
— $
—
2,602.6
— $
1,473.1
—
642.2
32.9
3,244.8
___________________
(a) The fair values of cash, cash equivalents and restricted cash approximate their carrying values due to their short-term nature and are
classified as Level 1 within the fair value hierarchy.
(b) The fair value of the senior notes is determined based on quoted prices, which is classified as Level 2 within the fair value hierarchy.
(c) The fair values of other secured notes and borrowings on the revolving credit facilities and the mortgage repurchase facility
approximate carrying value due to their short-term nature or floating interest rate terms, as applicable, and are classified as Level 3
within the fair value hierarchy.
101
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE N – RELATED PARTY TRANSACTIONS
In March 2019, the Company assigned its rights under a land purchase contract it entered into in December 2017 to
R&R Riverview LLC (R&R), an entity owned by Ryan Horton and Reagan Horton, the adult sons of Donald R. Horton,
the Company’s Chairman. In March 2019, R&R exercised its rights under the purchase contract and paid $77.5 million
for 119 acres of undeveloped land in Arizona. In connection with the transaction, Donald R. Horton loaned R&R $77.5
million at a 2.55% annual interest rate and obtained a security interest in the land. Concurrent with the contract
assignment to R&R, the Company entered into a land purchase contract with R&R to purchase the 119 acres for R&R’s
cost plus an annualized return of 16%. In accordance with the Company’s policy on related party transactions, this
transaction was reviewed and approved by a committee of the Board of Directors composed of independent directors.
The Company determined that R&R is a variable interest entity, and the Company has the power through its rights
in its land purchase contract with R&R to control the activities that most significantly impact the entity’s economic
performance, and the Company is the primary beneficiary. Accordingly, the Company consolidated the variable interest
entity in its consolidated financial statements by increasing inventory and notes payable by $77.5 million, and this
amount was included in those balances at September 30, 2019.
In October 2019, the Company paid R&R $84.2 million for all 119 acres of land. The purchase transaction was also
reviewed and approved by a committee of the Board of Directors composed of independent directors.
102
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE O – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Consolidated quarterly results of operations for fiscal 2019 and 2018 were (in millions, except per share amounts):
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2019
Revenues .............................................................................. $
3,519.0
$
4,128.7
$
4,906.3
$
5,038.9
Income before income taxes.................................................
Income tax expense ..............................................................
Net income ...........................................................................
Net income (loss) attributable to noncontrolling interests ...
Net income attributable to D.R. Horton, Inc. .......................
Basic net income per common share
attributable to D.R. Horton, Inc. .......................................
Diluted net income per common share
attributable to D.R. Horton, Inc. .......................................
375.7
89.0
286.7
(0.5)
287.2
0.77
0.76
462.8
108.4
354.4
3.1
351.3
0.94
0.93
626.7
153.1
473.6
(1.2)
474.8
1.28
1.26
660.1
156.2
503.9
(1.4)
505.3
1.37
1.35
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Fiscal 2018
Revenues .............................................................................. $
3,332.7
$
3,794.7
$
4,435.3
$
4,505.2
Income before income taxes.................................................
Income tax expense (1) ........................................................
Net income ...........................................................................
Net income (loss) attributable to noncontrolling interests ...
Net income attributable to D.R. Horton, Inc. .......................
Basic net income per common share
attributable to D.R. Horton, Inc. .......................................
Diluted net income per common share
attributable to D.R. Horton, Inc. .......................................
_____________
391.2
202.4
188.8
(0.5)
189.3
0.50
0.49
444.8
94.0
350.8
(0.2)
351.0
0.93
0.91
616.2
162.5
453.7
(0.1)
453.8
1.20
1.18
607.7
138.8
468.9
2.8
466.1
1.24
1.22
(1) Income tax expense in the first quarter of fiscal 2018 includes additional expense of $108.7 million due to
remeasurement of the Company’s net deferred tax assets as a result of the Tax Act.
The Company experiences variability in its results of operations from quarter to quarter due to the seasonal nature
of its homebuilding business. The Company generally closes more homes and has greater revenues and income before
income taxes in the third and fourth quarters (June and September) than in the first and second quarters (December and
March) of its fiscal year.
103
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION
All of the Company’s homebuilding senior notes and the homebuilding revolving credit facility are fully and
unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of D.R. Horton, Inc. (Guarantor Subsidiaries).
Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by the Company. The Company’s subsidiaries
associated with the Forestar land development operation, the financial services operations and certain other subsidiaries do
not guarantee the Company’s homebuilding senior notes or the homebuilding revolving credit facility (collectively, Non-
Guarantor Subsidiaries). In lieu of providing separate financial statements for the Guarantor Subsidiaries, consolidating
condensed financial statements are presented below. Separate financial statements and other disclosures concerning the
Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.
The guarantees by a Guarantor Subsidiary will be automatically and unconditionally released and discharged upon: (1)
the sale or other disposition of its common stock whereby it is no longer a subsidiary of the Company; (2) the sale or other
disposition of all or substantially all of its assets (other than to the Company or another Guarantor); (3) its merger or
consolidation with an entity other than the Company or another Guarantor; or (4) its ceasing to guarantee any of the
Company’s publicly traded debt securities and ceasing to guarantee any of the Company’s obligations under the
homebuilding revolving credit facility.
104
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2019
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
ASSETS
Cash and cash equivalents ......................... $
877.1
$
115.8
$
501.4
$
— $
1,494.3
Restricted cash ...........................................
Investment in subsidiaries..........................
Inventories..................................................
Investment in unconsolidated entities........
Mortgage loans held for sale......................
Deferred income taxes, net ........................
Property and equipment, net ......................
Other assets ................................................
Goodwill ....................................................
Intercompany receivables ..........................
6.8
7,349.8
4,166.1
—
—
60.6
123.8
398.7
—
—
1.3
—
11.6
—
—
(7,349.8)
19.7
—
5,890.7
1,260.5
(35.3)
11,282.0
—
—
89.4
76.6
459.7
134.3
825.9
6.5
1,072.0
8.0
267.8
174.4
29.2
—
—
—
5.1
(6.0)
(89.5)
—
(825.9)
6.5
1,072.0
163.1
462.2
943.3
163.5
—
Total Assets ............................................... $
12,982.9
$
7,593.7
$
3,331.4
$
(8,301.4) $
15,606.6
LIABILITIES & EQUITY
Accounts payable and other liabilities ....... $
616.1
$
1,071.3
$
316.4
$
(91.7) $
1,912.1
Intercompany payables ..............................
Notes payable.............................................
Total Liabilities.........................................
352.7
1,955.9
2,924.7
Stockholders’ equity...................................
10,058.2
Noncontrolling interests.............................
—
—
14.2
1,085.5
6,508.2
—
473.2
1,429.3
2,218.9
841.6
270.9
(825.9)
—
(917.6)
—
3,399.4
5,311.5
(7,387.1)
10,020.9
3.3
274.2
Total Equity ..............................................
10,058.2
6,508.2
1,112.5
(7,383.8)
10,295.1
Total Liabilities & Equity........................ $
12,982.9
$
7,593.7
$
3,331.4
$
(8,301.4) $
15,606.6
105
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Balance Sheet
September 30, 2018
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
ASSETS
Cash and cash equivalents ......................... $
908.1
$
158.7
$
406.3
$
— $
1,473.1
Restricted cash ...........................................
Investment in subsidiaries..........................
Inventories..................................................
Investment in unconsolidated entities........
Mortgage loans held for sale......................
Deferred income taxes, net ........................
Property and equipment, net ......................
Other assets ................................................
Goodwill ....................................................
Intercompany receivables ..........................
6.6
6,344.9
4,037.1
—
—
69.2
111.2
306.6
—
246.2
2.0
—
5,824.1
—
—
105.0
66.1
361.3
80.0
27.3
24.3
—
545.0
11.0
796.4
17.3
230.7
79.2
29.2
—
—
(6,344.9)
32.9
—
(11.2)
10,395.0
—
—
2.5
(6.9)
(45.2)
—
(273.5)
11.0
796.4
194.0
401.1
701.9
109.2
—
Total Assets ............................................... $
12,029.9
$
6,624.5
$
2,139.4
$
(6,679.2) $
14,114.6
LIABILITIES & EQUITY
Accounts payable and other liabilities ....... $
590.8
$
1,000.4
$
210.1
$
(49.1) $
1,752.2
Intercompany payables ..............................
Notes payable.............................................
Total Liabilities.........................................
Stockholders’ equity...................................
Noncontrolling interests.............................
—
2,443.9
3,034.7
8,995.2
—
—
2.1
1,002.5
5,622.0
—
Total Equity ..............................................
8,995.2
5,622.0
273.5
757.5
1,241.1
722.8
175.5
898.3
(273.5)
—
(322.6)
(6,355.6)
(1.0)
(6,356.6)
—
3,203.5
4,955.7
8,984.4
174.5
9,158.9
Total Liabilities & Equity........................ $
12,029.9
$
6,624.5
$
2,139.4
$
(6,679.2) $
14,114.6
106
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Year Ended September 30, 2019
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
Revenues .................................................................... $
6,812.6
$ 10,210.4
$
906.1
$
(336.2) $ 17,592.9
Cost of sales ...............................................................
5,350.3
Selling, general and administrative expense..............
731.3
Equity in earnings of unconsolidated entities ............
Gain on sale of assets.................................................
Other (income) expense .............................................
Income before income taxes ......................................
Income tax expense.............................................
Equity in net income of subsidiaries, net of tax..
Net income .................................................................
Net loss attributable to noncontrolling interests ........
—
(2.0)
(5.0)
738.0
176.9
1,084.0
1,645.1
—
8,301.5
744.9
—
—
(1.5)
1,165.5
279.5
—
886.0
—
373.3
356.3
(0.5)
(49.2)
(24.9)
251.1
57.3
—
193.8
(4.1)
(304.2)
13,720.9
—
—
(2.7)
—
(29.3)
(7.0)
(1,084.0)
(1,106.3)
4.2
1,832.5
(0.5)
(53.9)
(31.4)
2,125.3
506.7
—
1,618.6
0.1
Net income attributable to D.R. Horton, Inc.............. $
1,645.1
$
886.0
$
197.9
$ (1,110.5) $
1,618.5
107
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Year Ended September 30, 2018
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
Revenues .................................................................... $
5,835.0
$
9,795.7
$
488.0
$
(50.7) $ 16,068.0
Cost of sales ...............................................................
4,612.5
Selling, general and administrative expense..............
665.6
Equity in earnings of unconsolidated entities ............
Gain on sale of assets.................................................
Other (income) expense .............................................
Income before income taxes ......................................
Income tax expense.............................................
Equity in net income of subsidiaries, net of tax..
Net income .................................................................
Net income attributable to noncontrolling interests...
—
(2.4)
(6.0)
565.3
167.9
1,069.7
1,467.1
—
7,752.5
676.1
—
—
(0.2)
1,367.3
406.1
—
961.2
—
74.9
335.1
(5.3)
(16.4)
(39.1)
138.8
27.1
—
111.7
3.1
(41.8)
12,398.1
—
2.5
—
—
(11.4)
(3.4)
(1,069.7)
(1,077.7)
(1.1)
1,676.8
(2.8)
(18.8)
(45.3)
2,060.0
597.7
—
1,462.3
2.0
Net income attributable to D.R. Horton, Inc.............. $
1,467.1
$
961.2
$
108.6
$ (1,076.6) $
1,460.3
108
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Operations
Year Ended September 30, 2017
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
Revenues .................................................................... $
4,773.6
$
8,939.5
$
387.0
$
(9.1) $ 14,091.0
Cost of sales ...............................................................
3,827.6
7,199.6
Selling, general and administrative expense..............
Other (income) expense .............................................
Income before income taxes ......................................
Income tax expense.............................................
Equity in net income of subsidiaries, net of tax..
584.3
(8.3)
370.0
129.4
798.2
631.0
(1.4)
1,110.3
388.6
—
24.1
256.3
(15.8)
122.4
45.9
—
(8.5)
11,042.8
—
—
(0.6)
(0.2)
(798.2)
1,471.6
(25.5)
1,602.1
563.7
—
Net income ................................................................. $
1,038.8
$
721.7
$
76.5
$
(798.6) $
1,038.4
109
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2019
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities... $
INVESTING ACTIVITIES
Expenditures for property and equipment.............
Proceeds from sale of assets..................................
Expenditures related to rental properties...............
Return of investment in unconsolidated entities ...
Net principal increase of other mortgage loans
and real estate owned.........................................
Intercompany advances.........................................
Payments related to business acquisitions ............
Net cash used in investing activities ..........................
FINANCING ACTIVITIES
Proceeds from notes payable.................................
Repayment of notes payable .................................
Advances on mortgage repurchase facility, net.....
Intercompany advances.........................................
Proceeds from stock associated with certain
employee benefit plans ......................................
Cash paid for shares withheld for taxes ................
Cash dividends paid ..............................................
Repurchases of common stock..............................
Distributions to noncontrolling interests, net ........
Net proceeds from issuance of Forestar common
stock...................................................................
Net cash (used in) provided by financing activities...
(Decrease) increase in cash, cash equivalents
and restricted cash ..................................................
Cash, cash equivalents and restricted cash
at beginning of year................................................
Cash, cash equivalents and restricted cash
at end of year .......................................................... $
581.8
$
1,092.2
$
(679.9) $
(102.0) $
892.1
(45.3)
10.4
(4.0)
—
—
(192.2)
(307.5)
(538.6)
2,100.0
(2,600.0)
—
1,106.2
42.7
(19.7)
(223.4)
(479.8)
—
—
(74.0)
(30.8)
(26.1)
—
(2.4)
—
—
(1,106.2)
—
(1,134.7)
—
(1.1)
—
—
—
—
—
—
—
—
(1.1)
(43.6)
914.7
160.7
(55.8)
133.4
(90.5)
4.4
(2.3)
—
(8.3)
—
—
—
—
—
1,298.4
—
(19.1)
1,298.4
428.2
(85.0)
251.2
192.2
—
—
(102.0)
—
(3.9)
100.7
781.4
82.4
430.6
—
—
—
(1,298.4)
—
—
102.0
—
—
—
(1,196.4)
—
—
(127.2)
143.8
(96.9)
4.4
(2.3)
—
(315.8)
(394.0)
2,528.2
(2,686.1)
251.2
—
42.7
(19.7)
(223.4)
(479.8)
(3.9)
100.7
(490.1)
8.0
1,506.0
883.9
$
117.1
$
513.0
$
— $
1,514.0
110
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2018
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
OPERATING ACTIVITIES
Net cash provided by (used in) operating activities... $
INVESTING ACTIVITIES
Expenditures for property and equipment.............
Proceeds from sale of assets..................................
Expenditures related to rental properties...............
Return of investment in unconsolidated entities ...
Net principal increase of other mortgage loans
and real estate owned.........................................
Proceeds from debt securities collateralized by
residential real estate .........................................
Intercompany advances.........................................
Payments related to business acquisitions,
net of cash acquired ...........................................
Net cash provided by (used in) investing activities ...
FINANCING ACTIVITIES
Proceeds from notes payable.................................
Repayment of notes payable .................................
Advances on mortgage repurchase facility, net.....
Intercompany advances.........................................
Proceeds from stock associated with certain
employee benefit plans ......................................
Cash paid for shares withheld for taxes ................
Cash dividends paid ..............................................
Repurchases of common stock..............................
Distributions to noncontrolling interests, net ........
Net cash (used in) provided by financing activities...
Increase in cash, cash equivalents
and restricted cash ..................................................
Cash, cash equivalents and restricted cash
at beginning of year................................................
Cash, cash equivalents and restricted cash
at end of year .......................................................... $
195.0
$
903.8
$
(445.9) $
(107.7) $
545.2
(34.5)
—
—
—
—
7.3
801.8
(561.0)
213.6
2,162.1
(2,165.9)
—
—
47.4
(10.3)
(188.4)
(127.5)
—
(282.6)
126.0
788.7
(30.3)
—
—
—
—
—
—
—
(30.3)
—
(5.2)
—
(863.6)
—
—
—
—
—
(868.8)
4.7
156.0
(3.3)
292.9
(81.8)
17.5
(1.2)
—
—
401.8
625.9
1.4
(10.6)
217.7
61.8
—
—
(96.1)
—
(3.2)
171.0
351.0
79.6
—
—
11.6
—
—
—
(801.8)
—
(790.2)
—
—
—
801.8
—
—
96.1
—
—
897.9
—
—
(68.1)
292.9
(70.2)
17.5
(1.2)
7.3
—
(159.2)
19.0
2,163.5
(2,181.7)
217.7
—
47.4
(10.3)
(188.4)
(127.5)
(3.2)
(82.5)
481.7
1,024.3
914.7
$
160.7
$
430.6
$
— $
1,506.0
111
D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE P – SUPPLEMENTAL GUARANTOR INFORMATION - (Continued)
Consolidating Statement of Cash Flows
Year Ended September 30, 2017
D.R.
Horton, Inc.
Guarantor
Subsidiaries
Non-Guarantor
Subsidiaries
Eliminations
Total
(In millions)
OPERATING ACTIVITIES
Net cash (used in) provided by operating activities... $
INVESTING ACTIVITIES
Expenditures for property and equipment.............
Expenditures related to rental properties...............
Net principal decrease of other mortgage loans
and real estate owned.........................................
Purchases of debt securities collateralized by
residential real estate .........................................
Intercompany advances.........................................
Payments related to business acquisitions ............
Net cash provided by (used in) investing activities ...
FINANCING ACTIVITIES
Proceeds from notes payable.................................
Repayment of notes payable .................................
Payments on mortgage repurchase facility, net.....
Intercompany advances.........................................
Proceeds from stock associated with certain
employee benefit plans ......................................
Excess income tax benefit from
employee stock awards......................................
Cash paid for shares withheld for taxes ................
Cash dividends paid ..............................................
Repurchases of common stock..............................
Net cash used in financing activities..........................
(Decrease) increase in cash, cash equivalents
and restricted cash ..................................................
Cash, cash equivalents and restricted cash
at beginning of year................................................
Cash, cash equivalents and restricted cash
at end of year .......................................................... $
(283.2) $
721.0
$
115.0
$
(112.6) $
440.2
(54.2)
—
—
(8.8)
561.7
(4.1)
494.6
835.0
(1,187.2)
—
—
46.7
14.3
(5.1)
(149.6)
(60.6)
(506.5)
(295.1)
(26.2)
—
—
—
—
—
(26.2)
—
(5.1)
—
(689.8)
—
—
—
—
—
(694.9)
(0.1)
1,083.8
156.1
(22.3)
(63.7)
6.2
—
—
—
(79.8)
—
—
(53.0)
128.1
—
—
—
(103.5)
—
(28.4)
6.8
72.8
—
9.1
—
—
(561.7)
—
(552.6)
—
—
—
561.7
—
—
—
103.5
—
665.2
—
—
(102.7)
(54.6)
6.2
(8.8)
—
(4.1)
(164.0)
835.0
(1,192.3)
(53.0)
—
46.7
14.3
(5.1)
(149.6)
(60.6)
(564.6)
(288.4)
1,312.7
788.7
$
156.0
$
79.6
$
— $
1,024.3
112
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the
participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the
Company’s disclosure controls and procedures as of September 30, 2019 were effective in providing reasonable
assurance that information required to be disclosed in the reports the Company files, furnishes, submits or otherwise
provides the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms, and that information required to be
disclosed in reports filed by the Company under the Exchange Act is accumulated and communicated to the Company’s
management, including the CEO and CFO, in such a manner as to allow timely decisions regarding the required
disclosure.
There have been no changes in the Company’s internal controls over financial reporting during the quarter ended
September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial
reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on
the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s
internal control over financial reporting was effective as of September 30, 2019.
Ernst & Young LLP, an independent registered public accounting firm, has audited the effectiveness of our internal
control over financial reporting as of September 30, 2019, as stated in their report included herein.
ITEM 9B. OTHER INFORMATION
None.
113
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is set forth under the captions “Proposal One — Election of Directors,”
“Corporate Governance and Board Matters,” “Delinquent Section 16(a) Reports” and “Requesting Documents from the
Company” in the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders and incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the captions “Executive Compensation” and
“Compensation Committee Interlocks and Insider Participation” in the registrant’s definitive Proxy Statement for the
2020 Annual Meeting of Stockholders and incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plans as of September 30, 2019.
(a)
Number of Shares to
be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
9,093,691 (1)
$
19.53 (2)
12,052,770 (3)
—
n/a
19.53
—
12,052,770
Plan Category
Equity compensation plans
approved by stockholders ..................
Equity compensation plans not
approved by stockholders ..................
Total.....................................................
9,093,691
$
______________
(1) Amount includes outstanding stock option and restricted stock unit awards. The number of outstanding performance-based
restricted stock unit awards is based on the target number of units granted.
(2) Amount reflects the weighted average exercise price with respect to outstanding stock options and does not take into account
outstanding restricted stock units, which do not have an exercise price.
(3) Amount includes 2,959,079 shares reserved for issuance under the Company’s Employee Stock Purchase Plan. Under the
Employee Stock Purchase Plan, employees purchased 141,661 shares of common stock in fiscal 2019.
The remaining information required by this item is set forth under the caption “Beneficial Ownership of Common
Stock” in the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders and incorporated
herein by reference.
114
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is set forth under the captions “Certain Relationships and Related Person
Transactions” and “Corporate Governance and Board Matters” in the registrant’s definitive Proxy Statement for the
2020 Annual Meeting of Stockholders and incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is set forth under the caption “Independent Registered Public Accountants”
in the registrant’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders and incorporated herein by
reference.
115
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1). Financial Statements:
See Item 8 above.
(2). Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission
(SEC) are omitted because they are not required under the related instructions or are not applicable, or because the required
information is shown in the consolidated financial statements or notes thereto.
(3). and (b) Exhibits:
Exhibit
Number
Exhibit
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
Agreement and Plan of Merger dated June 29, 2017 by and among the Company, Force Merger Sub, Inc. and
Forestar Group Inc. (incorporated by reference from Exhibit 2.1 to the Company’s Current Report on Form 8-K
dated June 29, 2017, filed with the SEC on June 29, 2017).
Certificate of Amendment of the Amended and Restated Certificate of Incorporation, as amended, of the
Company, dated January 31, 2006, and the Amended and Restated Certificate of Incorporation, as amended, of
the Company dated March 18, 1992 (incorporated by reference from Exhibit 3.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2005, filed with the SEC on February 2, 2006).
Amended and Restated Bylaws (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on
Form 8-K, dated November 2, 2017, filed with the SEC on November 8, 2017).
See Exhibit 3.1
Senior Debt Securities Indenture, dated as of May 1, 2012, between Company and American Stock Transfer &
Trust Company, LLC, as Trustee (incorporated by reference from Exhibit 4.1 to the Company’s Current Report
on Form 8-K dated May 1, 2012, filed with the SEC on May 4, 2012).
Second Supplemental Indenture, dated as of September 14, 2012, among the Company, the Guarantors named
therein and American Stock Transfer & Trust Company, LLC, as Trustee, relating to the 4.375% Senior Notes
due 2022 issued by the Company (incorporated by reference from Exhibit 4.1 to the Company’s Current Report
on Form 8-K dated September 14, 2012, filed with the SEC on September 17, 2012).
Fourth Supplemental Indenture, dated as of February 5, 2013, among the Company, the Guarantors named
therein and American Stock Transfer & Trust Company, LLC, as Trustee, relating to the 4.750% Senior Notes
due 2023 issued by the Company (incorporated by reference from Exhibit 4.2 to the Company’s Current Report
on Form 8-K dated February 5, 2013, filed with the SEC on February 8, 2013).
Fifth Supplemental Indenture, dated as of February 5, 2013, among the Company, the Guarantors named therein
and American Stock Transfer & Trust Company, LLC, as trustee (incorporated by reference from Exhibit 4.3 to
the Company’s Current Report on Form 8-K dated February 5, 2013, filed with the SEC on February 8, 2013).
Sixth Supplemental Indenture, dated as of August 5, 2013, among the Company, the Guarantors named therein
and American Stock Transfer & Trust Company, LLC, as Trustee, relating to the 5.750% Senior Notes Due 2023
issued by the Company (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form
8-K dated August 5, 2013, filed with the SEC on August 8, 2013).
Eighth Supplemental Indenture, dated as of February 9, 2015, among the Company, the Guarantors named
therein and American Stock Transfer & Trust Company, LLC, as trustee, relating to the 4.000% Senior Notes
Due 2020 issued by the Company (incorporated by reference from Exhibit 4.1 to the Company’s Current Report
on Form 8-K dated February 9, 2015, filed with the SEC on February 9, 2015).
116
Exhibit
Number
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
Exhibit
Ninth Supplemental Indenture, dated as of December 5, 2017, among the Company, the Guarantors named
therein, American Stock Transfer & Trust Company, LLC, as original trustee, and Branch Banking and Trust
Company, as series trustee, relating to the 2.550% Senior Notes Due 2020 issued by the Company (incorporated
by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 5, 2017, filed
with the SEC on December 5, 2017).
Tenth Supplemental Indenture, dated as of December 5, 2017, among the Company, the Guarantors named
therein and American Stock Transfer & Trust Company, LLC, as trustee (incorporated by reference from Exhibit
4.2 to the Company’s Current Report on Form 8-K dated December 5, 2017, filed with the SEC on December 5,
2017).
Eleventh Supplemental Indenture, dated as of October 10, 2019, among the Company, the guarantors named
therein, American Stock Transfer & Trust Company, LLC, as original trustee, and Branch Banking and Trust
Company, as series trustee (incorporated by reference from Exhibit 4.3 to the Company’s Current Report on
Form 8-K dated October 10, 2019, filed with the SEC on October 10, 2019).
Indenture, dated February 26, 2013, between Forestar Group Inc. and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.1 of Forestar’s Current Report on Form 8-K filed with the SEC on
February 26, 2013).
First Supplemental Indenture, dated February 26, 2013, between Forestar Group Inc. and U.S. Bank National
Association, as trustee, relating to the 3.75% Convertible Senior Notes due 2020 issued by Forestar Group Inc.
(incorporated by reference to Exhibit 4.2 of Forestar’s Current Report on Form 8-K filed with the SEC on
February 26, 2013).
Third Supplemental Indenture, dated October 5, 2017, between Forestar Group Inc. and U.S. Bank National
Association (incorporated by reference to Exhibit 4.1 of Forestar’s Current Report on Form 8-K filed with the
SEC on October 10, 2017).
Indenture, dated as of April 12, 2019, by and among Forestar Group Inc., the subsidiary guarantors party thereto
and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of Forestar’s Current
Report on Form 8-K filed with the SEC on April 12, 2019).
Senior Debt Securities Indenture, dated as of October 10, 2019, among D.R. Horton, Inc. and Branch Banking
and Trust Company, as trustee (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on
Form 8-K dated October 10, 2019, filed with the SEC on October 10, 2019).
First Supplemental Indenture, dated as of October 10, 2019, among the Company, the guarantors named therein
and Branch Banking and Trust Company, as trustee, relating to the 2.500% Senior Notes Due 2024 issued by the
Company (incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K dated
October 10, 2019, filed with the SEC on October 10, 2019).
4.17 *
Description of Securities.
10.1
Form of Indemnification Agreement between the Company and each of its directors and executive officers and
schedules of substantially identical documents (incorporated by reference from Exhibit 10.1 to the Company’s
Annual Report on Form 10-K for the fiscal year ended September 30, 1995, filed with the SEC on November
22, 1995 (file number 1-14122); Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, filed with the SEC on August 6, 1998; and Exhibit 10.4 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001, filed with the SEC on May 15, 2001).
10.2 † D.R. Horton, Inc. 1991 Stock Incentive Plan, as amended and restated (incorporated by reference from Exhibit
10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed with the SEC
on August 13, 2002).
10.3 † Amendment No. 1 to 1991 Stock Incentive Plan, as amended and restated (incorporated by reference from
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed with
the SEC on August 13, 2002).
117
Exhibit
Number
Exhibit
10.4 † Form of Non-Qualified Stock Option Agreement under the D.R. Horton, Inc. 1991 Stock Incentive Plan (Term
Vesting) (incorporated by reference from Exhibit 10.3 to the Company’s Registration Statement on Form S-1
(Registration No. 3-81856), filed with the SEC on July 22, 1994).
10.5 † D.R. Horton, Inc. 2006 Stock Incentive Plan (incorporated by reference from Exhibit 10.6 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed with the SEC on February 2,
2006).
10.6 † D.R. Horton, Inc. 2006 Stock Incentive Plan, as amended and restated (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated January 20, 2011, filed with the SEC on January 26,
2011).
10.7 † D.R. Horton, Inc. 2006 Stock Incentive Plan, as amended and restated, effective as of December 11, 2014
(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 22,
2015, filed with the SEC on January 26, 2015).
10.8 † Form of Non-Qualified Stock Option Agreement under the D.R. Horton, Inc. 2006 Stock Incentive Plan
(Employee - Term Vesting 2006 Form) (incorporated by reference from Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the SEC on May 8, 2006).
10.9 † Form of Non-Qualified Stock Option Agreement under the D.R. Horton, Inc. 2006 Stock Incentive Plan
(Director - Term Vesting 2006 Form) (incorporated by reference from Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006, filed with the SEC on May 8, 2006).
10.10 † Form of Non-Qualified Stock Option Agreement (Employee-Term Vesting 2008 Form) pursuant to the
Company’s 2006 Stock Incentive Plan (incorporated by reference from Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated February 11, 2008, filed with the SEC on February 15, 2008).
10.11 † Form of Non-Qualified Stock Option Agreement (Outside Director-Term Vesting 2008 Form) pursuant to the
Company’s 2006 Stock Incentive Plan (incorporated by reference from Exhibit 10.3 to the Company’s Current
Report on Form 8-K dated February 11, 2008, filed with the SEC on February 15, 2008).
10.12 † Form of Restricted Stock Unit Agreement pursuant to the Company’s 2006 Stock Incentive Plan (incorporated
by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 30, 2010, filed
with the SEC on October 6, 2010).
10.13 † Form of Restricted Stock Unit Agreement pursuant to the Company’s 2006 Stock Incentive Plan, as amended
and restated (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
November 9, 2011, filed with the SEC on November 16, 2011).
10.14 † Form of Restricted Stock Unit Agreement (Outside Director) pursuant to the Company’s 2006 Stock Incentive
Plan, as amended and restated (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report
on Form 10-Q for the quarter ended December 31, 2012, filed with the SEC on January 29, 2013).
10.15 † Form of Restricted Stock Unit Agreement (Employees) pursuant to the Company’s 2006 Stock Incentive Plan,
as amended and restated (incorporated by reference from Exhibit 10.4 to the Company’s Current Report on
Form 8-K dated November 5, 2014, filed with the SEC on November 12, 2014).
10.16 † Form of Time-Based Restricted Stock Unit Agreement (Employees) pursuant to the Company’s 2006 Stock
Incentive Plan, as amended and restated (incorporated by reference from Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on April 24, 2015).
10.17 † Form of Stock Award Agreement pursuant to the Company’s 2006 Stock Incentive Plan (incorporated by
reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 30, 2010, filed
with the SEC on October 6, 2010).
10.18 † D.R. Horton, Inc. Supplemental Executive Retirement Plan No. 1 (incorporated by reference from the
Company’s Transitional Report on Form 10-K for the period from January 1, 1993 to September 30, 1993, filed
with the SEC on December 28, 1993 (file number 1-14122)).
118
Exhibit
Number
Exhibit
10.19 † D.R. Horton, Inc. Amended and Restated Deferred Compensation Plan (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated December 10, 2008, filed with the SEC on December
16, 2008).
10.20 † D.R. Horton, Inc. Amended and Restated Supplemental Executive Retirement Plan No. 2 (incorporated by
reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 10, 2008, filed with
the SEC on December 16, 2008).
10.21 † D.R. Horton, Inc. 2018 Incentive Bonus Plan, dated November 6, 2018 (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated November 6, 2018, filed with the SEC on November
9, 2018).
10.22 † Summary of Executive Compensation Notification - Chairman, CEO and COO (fiscal 2019) (incorporated by
reference from Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended September 30,
2018, filed with the SEC on November 16, 2018).
10.23 * † Summary of Executive Compensation Notification - Chairman, CEO and COO (fiscal 2020).
10.24 † Summary of Executive Compensation Notification - Other Executive Officer - CFO (fiscal 2019) (incorporated
by reference from Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended September
30, 2018, filed with the SEC on November 16, 2018).
10.25 * † Summary of Executive Compensation Notification - Other Executive Officer - CFO (fiscal 2020).
10.26 † Summary of Director, Committee and Chairperson Compensation (fiscal 2019) (incorporated by reference from
Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended September 30, 2018, filed with
the SEC on November 16, 2018).
10.27 * † Summary of Director, Committee and Chairperson Compensation (fiscal 2020).
10.28
10.29
10.30
10.31
10.32
10.33
10.34
Grantor Trust Agreement, dated June 21, 2002, by and between the Company and Wachovia Bank, National
Association, as Trustee (incorporated by reference from Exhibit 10.34 to the Company’s Annual Report on Form
10-K for the fiscal year ended September 30, 2002, filed with the SEC on December 13, 2002).
Credit Agreement, dated September 7, 2012, among the Company, the Lenders named therein and The Royal
Bank of Scotland PLC, as Administrative Agent (incorporated by reference from Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated September 7, 2012, filed with the SEC on September 10, 2012).
Amendment No.1 to Credit Agreement, dated November 1, 2012, among the Company, The Royal Bank of
Scotland PLC, as Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated November 1, 2012, filed with the SEC on November
5, 2012).
Amendment No. 2 to Credit Agreement, dated August 8, 2013 by and among the Company, The Royal Bank of
Scotland PLC, as Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated August 8, 2013, filed with the SEC on August 13,
2013).
Amendment No. 3 to Credit Agreement, dated August 22, 2014 by and among Company, The Royal Bank of
Scotland PLC, as Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated August 22, 2014, filed with the SEC on August 25,
2014).
Amendment No. 5 to Credit Agreement, dated August 26, 2015 by and among Company, Mizuho Bank, Ltd., as
successor Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated August 26, 2015, filed with the SEC on August 27, 2015).
Amendment No. 6 to Credit Agreement, dated September 25, 2017 by and among the Company, Mizuho Bank,
Ltd., as successor Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated September 25, 2017, filed with the SEC on
September 28, 2017).
119
Exhibit
Number
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
Exhibit
Amendment No. 7 to Credit Agreement, dated September 25, 2018 by and among the Company, Mizuho Bank,
Ltd., as successor Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Current Report on Form 8-K dated September 25, 2018, filed with the SEC on
September 26, 2018).
Amendment No. 8 to Credit Agreement, dated February 15, 2019 by and among the Company, Mizuho Bank,
Ltd., as successor Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, filed with the
SEC on April 30, 2019).
Amendment No. 9 to Credit Agreement, dated October 2, 2019 by and among the Company, Mizuho Bank, Ltd.,
as successor Administrative Agent, and the Lenders named therein (incorporated by reference from Exhibit 10.1
to the Company’s Current Report on Form 8-K dated October 2, 2019, filed with the SEC on October 4, 2019).
Second Amended and Restated Master Repurchase Agreement, dated February 27, 2015, among DHI Mortgage
Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book Runner, Lead Arranger,
and a Buyer, and all other buyers (incorporated by reference from Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated February 27, 2015, filed with the SEC on March 4, 2015).
First Amendment to Second Amended and Restated Master Repurchase Agreement, dated February 26, 2016,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated February 26, 2016, filed with the SEC on March 2, 2016).
Third Amendment to Second Amended and Restated Master Repurchase Agreement, dated September 23, 2016,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated September 23, 2016, filed with the SEC on September 27, 2016).
Fourth Amendment to Second Amended and Restated Master Repurchase Agreement, dated February 24, 2017,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other Buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated February 24, 2017, filed with the SEC on February 28, 2017).
Fifth Amendment to Second Amended and Restated Master Repurchase Agreement, dated February 23, 2018,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other Buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated February 23, 2018, filed with the SEC on February 28, 2018).
Sixth Amendment to Second Amended and Restated Master Repurchase Agreement, dated February 22, 2019,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other Buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated February 22, 2019, filed with the SEC on February 22, 2019).
10.44 *
Seventh Amendment to Second Amended and Restated Master Repurchase Agreement, dated March 26, 2019,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other Buyers.
10.45
10.46
10.47
Eighth Amendment to Second Amended and Restated Master Repurchase Agreement, dated June 21, 2019,
among DHI Mortgage Company, Ltd., U.S. Bank National Association, as Administrative Agent, Sole Book
Runner, Lead Arranger, and a Buyer, and all other Buyers (incorporated by reference from Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated June 21, 2019, filed with the SEC on June 26, 2019).
Amended and Restated Custody Agreement, dated March 1, 2013, by and between DHI Mortgage Company,
Ltd. and U.S. Bank National Association, as Administrative Agent and representative of certain buyers
(incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 27,
2015, filed with the SEC on March 4, 2015).
Stockholder’s Agreement dated June 29, 2017 by and between the Company and Forestar Group Inc.
(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 29,
2017, filed with the SEC on June 29, 2017).
120
Exhibit
Number
10.48
10.49
10.50
Exhibit
Master Supply Agreement dated June 29, 2017 by and between the Company and Forestar Group Inc.
(incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K dated June 29,
2017, filed with the SEC on June 29, 2017).
Credit Agreement, dated August 16, 2018, among Forestar Group Inc., the lenders party thereto and JPMorgan
Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 of Forestar’s Current
Report on Form 8-K filed with the SEC on August 17, 2018).
Amendment No. 1 to Credit Agreement, dated October 2, 2019 by and among Forestar Group Inc., JPMorgan
Chase Bank, N.A., as administrative agent, and the Lenders named therein (incorporated by reference from
Exhibit 10.1 to Forestar’s Current Report on Form 8-K dated October 2, 2019, filed with the SEC on October 3,
2019).
21.1 *
Subsidiaries of D.R. Horton, Inc.
23.1 *
Consent of PricewaterhouseCoopers LLP, Fort Worth, Texas
23.2 *
Consent of Ernst & Young LLP, Fort Worth, Texas
31.1 *
Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
31.2 *
Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002
32.1 *
32.2 *
Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, by the Company’s Chief Executive Officer
Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, by the Company’s Chief Financial Officer
101.INS ** XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the inline XBRL document.
101.SCH ** XBRL Taxonomy Extension Schema Document.
101.CAL ** XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF ** XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB ** XBRL Taxonomy Extension Label Linkbase Document.
101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document.
104 ** Cover Page Interactive Data File (embedded within the Inline XBRL document contained in Exhibit 101).
_____________________
*
Filed or furnished herewith.
**
Submitted electronically herewith.
†
Management contract or compensatory plan arrangement.
ITEM 16. 10-K SUMMARY
None.
121
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: November 25, 2019
D.R. Horton, Inc.
By:
/s/ Bill W. Wheat
Bill W. Wheat
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ David V. Auld
David V. Auld
/s/ Bill W. Wheat
Bill W. Wheat
/s/ Aron M. Odom
Aron M. Odom
/s/ Donald R. Horton
Donald R. Horton
/s/ Barbara K. Allen
Barbara K. Allen
/s/ Brad S. Anderson
Brad S. Anderson
/s/ Michael R. Buchanan
Michael R. Buchanan
/s/ Michael W. Hewatt
Michael W. Hewatt
/s/ Maribess L. Miller
Maribess L. Miller
President and Chief Executive Officer
(Principal Executive Officer)
November 25, 2019
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
November 25, 2019
Vice President and Controller
(Principal Accounting Officer)
November 25, 2019
Chairman of the Board and Director
November 25, 2019
November 25, 2019
November 25, 2019
November 25, 2019
November 25, 2019
November 25, 2019
Director
Director
Director
Director
Director
122
CORPORATE INFORMATION
D.R. Horton, Inc. (the “Company”) constructs and sells homes ranging in price from $100,000 to more than
$1,000,000. The Company operates in 90 markets across 29 states in the East, Midwest, Southeast, South Central,
Southwest and West regions of the United States, primarily under the names of D.R. Horton, America’s Builder, Emerald
Homes, Express Homes and Freedom Homes. For the year ended September 30, 2019, the Company closed 56,975
homes with an average sales price of $297,100. Founded in 1978, the Company’s common stock is included in the S&P
500 Index and is listed on the New York Stock Exchange under the ticker symbol “DHI.”
THE BOARD OF DIRECTORS
Donald R. Horton
Chairman
Annual Meeting of Stockholders
January 22, 2020
At the corporate offices of D.R. Horton, Inc.
1341 Horton Circle
Arlington, Texas 76011
Barbara K. Allen (1)
Former Partner and Housing, Construction and
Retailing Analyst of Avondale Partners
Brad S. Anderson (1)
Executive Vice President of CBRE Group, Inc.
Director of KS StateBank
Michael R. Buchanan (1)
Former Managing Director, National Real Estate
Banking Group, Bank of America
Michael W. Hewatt (1)
Former Principal of Hewatt & Associates, CPAs
Maribess L. Miller (1)
Former Partner of PricewaterhouseCoopers
Director of Triumph Bancorp and Zix Corporation
_____________
(1) Member of the Audit Committee, Compensation
Committee and Nominating and Governance
Committee.
Investor Relations
Jessica L. Hansen
D.R. Horton, Inc.
1341 Horton Circle
Arlington, Texas 76011
(817) 390-8200
Website
www.drhorton.com
Form 10-K
The Annual Report on Form 10-K of D.R. Horton, Inc.
may be accessed through the “Investor Relations” page
of our website, or a copy is available upon request to our
Investor Relations department at our corporate offices.
Public Debt Ratings
Senior Notes:
BBB Fitch Ratings
Baa3 Moody’s Investors Service
BBB Standard & Poor’s Ratings Services
A rating is not a recommendation to buy, sell or hold a
security, and ratings are subject to revision at any time
by the assigning agency.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
(800) 937-5449
HOMEBUILDING OPERATIONS
WEST
(cid:17)(cid:258)(cid:364)(cid:286)(cid:396)(cid:400)(cid:302)(cid:286)(cid:367)(cid:282)(cid:853)(cid:3)(cid:18)(cid:4)
Bay Area, CA
Fresno, CA
Los Angeles County, CA
Riverside County, CA
Sacramento, CA
San Bernardino County, CA
(cid:94)(cid:258)(cid:374)(cid:3)(cid:24)(cid:349)(cid:286)(cid:336)(cid:381)(cid:3)(cid:18)(cid:381)(cid:437)(cid:374)(cid:410)(cid:455)(cid:853)(cid:3)(cid:18)(cid:4)
Ventura County, CA
Hawaii, HI
Kauai, HI
Maui, HI
Oahu, HI
Las Vegas, NV
Reno, NV
Bend, OR
Portland/Salem, OR
Salt Lake City, UT
(cid:94)(cid:286)(cid:258)(cid:425)(cid:367)(cid:286)(cid:876)(cid:100)(cid:258)(cid:272)(cid:381)(cid:373)(cid:258)(cid:876)(cid:28)(cid:448)(cid:286)(cid:396)(cid:286)(cid:425)(cid:853)(cid:3)(cid:116)(cid:4)
(cid:94)(cid:393)(cid:381)(cid:364)(cid:258)(cid:374)(cid:286)(cid:853)(cid:3)(cid:116)(cid:4)
(cid:115)(cid:258)(cid:374)(cid:272)(cid:381)(cid:437)(cid:448)(cid:286)(cid:396)(cid:853)(cid:3)(cid:116)(cid:4)
SOUTHWEST
Phoenix, AZ
Tucson, AZ
Albuquerque, NM
MIDWEST
(cid:24)(cid:286)(cid:374)(cid:448)(cid:286)(cid:396)(cid:853)(cid:3)(cid:18)(cid:75)
Fort Collins, CO
Chicago, IL
(cid:38)(cid:381)(cid:396)(cid:410)(cid:3)(cid:116)(cid:258)(cid:455)(cid:374)(cid:286)(cid:853)(cid:3)(cid:47)(cid:69)
Indianapolis, IN
(cid:24)(cid:286)(cid:400)(cid:3)(cid:68)(cid:381)(cid:349)(cid:374)(cid:286)(cid:400)(cid:853)(cid:3)(cid:47)(cid:4)
Minneapolis/St. Paul, MN
(cid:18)(cid:349)(cid:374)(cid:272)(cid:349)(cid:374)(cid:374)(cid:258)(cid:415)(cid:853)(cid:3)(cid:75)(cid:44)
Columbus, OH
SOUTH CENTRAL
Baton Rouge, LA
(cid:62)(cid:258)(cid:296)(cid:258)(cid:455)(cid:286)(cid:425)(cid:286)(cid:853)(cid:3)(cid:62)(cid:4)
Oklahoma City, OK
(cid:4)(cid:437)(cid:400)(cid:415)(cid:374)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:17)(cid:396)(cid:455)(cid:258)(cid:374)(cid:876)(cid:18)(cid:381)(cid:367)(cid:367)(cid:286)(cid:336)(cid:286)(cid:3)(cid:94)(cid:410)(cid:258)(cid:415)(cid:381)(cid:374)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:24)(cid:258)(cid:367)(cid:367)(cid:258)(cid:400)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:38)(cid:381)(cid:396)(cid:410)(cid:3)(cid:116)(cid:381)(cid:396)(cid:410)(cid:346)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:44)(cid:381)(cid:437)(cid:400)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:60)(cid:349)(cid:367)(cid:367)(cid:286)(cid:286)(cid:374)(cid:876)(cid:100)(cid:286)(cid:373)(cid:393)(cid:367)(cid:286)(cid:876)(cid:116)(cid:258)(cid:272)(cid:381)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:68)(cid:349)(cid:282)(cid:367)(cid:258)(cid:374)(cid:282)(cid:876)(cid:75)(cid:282)(cid:286)(cid:400)(cid:400)(cid:258)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:69)(cid:286)(cid:449)(cid:3)(cid:17)(cid:396)(cid:258)(cid:437)(cid:374)(cid:296)(cid:286)(cid:367)(cid:400)(cid:876)(cid:94)(cid:258)(cid:374)(cid:3)(cid:68)(cid:258)(cid:396)(cid:272)(cid:381)(cid:400)(cid:853)(cid:3)(cid:100)(cid:121)
(cid:94)(cid:258)(cid:374)(cid:3)(cid:4)(cid:374)(cid:410)(cid:381)(cid:374)(cid:349)(cid:381)(cid:853)(cid:3)(cid:100)(cid:121)
SOUTHEAST
Birmingham, AL
Huntsville, AL
Mobile/Baldwin County, AL
Montgomery, AL
Tuscaloosa, AL
Fort Myers/Naples, FL
Gainesville, FL
Jacksonville, FL
Lakeland, FL
Melbourne/Vero Beach, FL
Miami/Fort Lauderdale, FL
Ocala, FL
Orlando, FL
Pensacola/Panama City, FL
Port St. Lucie, FL
Tampa/Sarasota, FL
Volusia County, FL
(cid:116)(cid:286)(cid:400)(cid:410)(cid:3)(cid:87)(cid:258)(cid:367)(cid:373)(cid:3)(cid:17)(cid:286)(cid:258)(cid:272)(cid:346)(cid:853)(cid:3)(cid:38)(cid:62)
Atlanta, GA
Augusta, GA
Gulf Coast, MS
(cid:18)(cid:346)(cid:258)(cid:425)(cid:258)(cid:374)(cid:381)(cid:381)(cid:336)(cid:258)(cid:853)(cid:3)(cid:100)(cid:69)
Knoxville, TN
Memphis, TN
Nashville, TN
EAST
(cid:18)(cid:286)(cid:374)(cid:410)(cid:396)(cid:258)(cid:367)(cid:3)(cid:24)(cid:286)(cid:367)(cid:258)(cid:449)(cid:258)(cid:396)(cid:286)
(cid:69)(cid:381)(cid:396)(cid:410)(cid:346)(cid:286)(cid:396)(cid:374)(cid:3)(cid:24)(cid:286)(cid:367)(cid:258)(cid:449)(cid:258)(cid:396)(cid:286)
Savannah, GA
(cid:17)(cid:258)(cid:367)(cid:415)(cid:373)(cid:381)(cid:396)(cid:286)(cid:853)(cid:3)(cid:68)(cid:24)
(cid:94)(cid:437)(cid:271)(cid:437)(cid:396)(cid:271)(cid:258)(cid:374)(cid:3)(cid:116)(cid:258)(cid:400)(cid:346)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:24)(cid:856)(cid:18)(cid:856)
Northern New Jersey
Southern New Jersey
Asheville, NC
(cid:18)(cid:346)(cid:258)(cid:396)(cid:367)(cid:381)(cid:425)(cid:286)(cid:853)(cid:3)(cid:69)(cid:18)
(cid:39)(cid:396)(cid:286)(cid:286)(cid:374)(cid:400)(cid:271)(cid:381)(cid:396)(cid:381)(cid:876)(cid:116)(cid:349)(cid:374)(cid:400)(cid:410)(cid:381)(cid:374)(cid:882)(cid:94)(cid:258)(cid:367)(cid:286)(cid:373)(cid:853)(cid:3)(cid:69)(cid:18)
(cid:90)(cid:258)(cid:367)(cid:286)(cid:349)(cid:336)(cid:346)(cid:876)(cid:24)(cid:437)(cid:396)(cid:346)(cid:258)(cid:373)(cid:853)(cid:3)(cid:69)(cid:18)
(cid:116)(cid:349)(cid:367)(cid:373)(cid:349)(cid:374)(cid:336)(cid:410)(cid:381)(cid:374)(cid:853)(cid:3)(cid:69)(cid:18)
Philadelphia, PA
Charleston, SC
Columbia, SC
Greenville/Spartanburg, SC
Hilton Head, SC
Myrtle Beach, SC
Northern Virginia
Southern Virginia
1341 Horton Circle
Arlington, Texas 76011
(817) 390-8200
www.drhorton.com